Trade Carbon Credits Certification
A carbon credit is a tradable certificate that represents one metric ton of reduced, avoided, or removed carbon dioxide (CO2) or other greenhouse gases. Each carbon credit is paired with its own unique tracking number that allows it to be tracked and validated throughout its lifetime in the market. The credits can be claimed by a business or individual to offset their own emissions. When a credit is used to offset, it is moved from the general register of credits, called retirements, and no longer tradable.
There are two main trade carbon credits markets for trading carbon credits: compliance and voluntary. Complyance markets are driven by governmental policies and legally binding agreements. The rules for these markets set strict requirements for project eligibility, verification, and reporting. Emissions allowances, or credits, are allocated to participants based on their annual emissions. To remain in compliance, companies can purchase and use carbon credits from projects that reduce emissions below their assigned allowances.
The voluntary carbon market works differently. It is driven by the needs of individuals and businesses who want to demonstrate environmental responsibility. The voluntary market is a natural extension of the existing global energy infrastructure and offers a range of options for companies looking to reduce their environmental footprint, meet corporate social responsibility commitments, or hedge against risk in a changing climate.
How to Trade Carbon Credits Certification
To qualify for trading, carbon projects must undergo rigorous third-party verification and validation to ensure they produce the desired outcomes. For example, to generate Verified Emission Reductions (VER), the world’s most common greenhouse gas reduction certificate, a project must be independently verified to be measurable, unique, and permanent. Some projects also offer additional co-benefits, such as community development and biodiversity protection.
As with other commodities, there is a thriving market to match buyers and sellers of carbon credits. Brokers act as intermediaries, purchasing large volumes of credits from suppliers and bundling them into portfolios ranging from hundreds to thousands of CO2 equivalent tons. They then sell the bundles to end buyers, typically for a fee. Retail traders are another buyer group that is increasingly active in the carbon market. They often have both brokering arms and project development arms, and can buy and sell bundled carbon credits directly to their clients.
Despite the robustness of these markets, concerns persist about their integrity. Among them are problems in accounting and verification methodologies, and the difficulty of matching carbon credits with specific buyers. There is also a lack of transparency over price, which can hamper market growth and stall efforts to reduce greenhouse gas emissions. A solution would be to standardize the features that make a carbon credit a good choice for a particular purpose and create a clear process for verifying that the attributes are in place. That could improve the efficiency of matching credits to buyers and increase the credibility of claims related to the environmental impact of each credit. The VCS Program from third-party organization Verra is an example of this effort.