There are different authorities, which issue carbon credits for sale to carbon offset projects. Projects choose the entity to which they will file their submissions depending on where the carbon credits will be traded and whether a particular authority has an approved methodology for their project type. For carbon credits traded on the compliance carbon market, the entity, which certifies the offset units is the Clean Development Mechanism (CDM) Executive Board and the JI (Joint Implementation) Authority . On the voluntary market, carbon credits are verified by various third-party standards — the Verified Carbon Standard (VCS), the Gold Standard and the Climate Action Reserve (CAR), to name a few.
Each standard, compliance or voluntary, has a list of criteria, which offset projects need to meet before they are issued viable carbon credits for sale. The prerequisites vary from standard to standard, but there are some common ones, such as additionality and leakage. Additionality means the offset project relies on the revenue from the carbon credits to keep it running. The leakage criteria makes sure that no carbon emissions occur elsewhere as a direct result of the offset project.
Here are the main types of offset project, which could be eligible for receiving certified carbon credits for sale:
- Renewable energy offsets, such as solar panels, geothermal projects, wind parks, etc. These alternative energy installations generate electricity and/or heat that don’t result in the release of any harmful gasses. The source of energy they use is virtually limitless and readily available from nature (i.e. sun, wind, water). Renewable projects are considered offsets eligible for carbon credits only if they meet the criteria set forth by the certifying authority. As we already mentioned, two of the essential prerequisites are that the projects need the revenue from carbon credits to keep them up and running, and that no emissions are being released some place else as a result of the renewable power installation. This means that projects supported by feed-in tariffs subsidised by the national government are usually not eligible. This applies to the majority of EU based renewable energy projects.
- Forestry projects. Investors, who own timberland or tree plantations, can potentially take advantage of the carbon sequestration capacity of trees and, thus, earn carbon credits for sale. Being dubbed “the lungs of the Earth,” tree trunks can store substantial amounts of carbon. Tree cutting, on the other hand, releases the stored carbon. That’s why illegal and unregulated logging is so troublesome. It is estimated logging practices, especially those taking place in the tropical regions, contribute from 20 per cent to 25 per cent of global carbon emissions. This alarming trend has caught the attention of the United Nations, which created a collaborative initiative for Reducing Emissions from Deforestation and Forest Degradation (REDD) in the developing countries. By issuing REDD carbon credits for sale to eligible offset projects, the program also provides income for poor indigenous communities. Forestry projects are potentially eligible for carbon credit project status where a financial incentive is required to make sustainable forestry or no forestry more economically attractive than destructive illegal logging. A carrot, rather than the stick which particularly in developing countries has, for numerous reasons proved to be ineffective.
- Agriculture provides several opportunities for investors to earn certified carbon credits. Adapted grazing land management, for example, reduces the amount of greenhouse gas emissions associated with raising livestock or producing dairy. Various other sustainable farming techniques which facilitate either increased carbon storage in, or leakage from, soil, are also becoming recognised as qualifying for carbon credit accreditation as offset projects.
Capturing methane emissions from animal waste is another of the more common types of carbon credit generation projects as methane emissions resulting from commercial farming of livestock contributes a perhaps surprisingly high 18% of all global greenhouse gas emissions throughout the whole commodity chain. This is higher than the percentage caused by global transport.
- Low-emission consumer goods are a creative way to combine innovation with then benefits of carbon credit revenue. A U.S. social enterprise is an example of how investors can cash in on their passion. The company makes and distributes low-carbon cooking stoves to poor households in some of the world’s poorest countries. Open wood fires and primitive stoves account for almost one-fifth of global greenhouse gas emissions, estimates the UN. Each low-carbon cooking stove, which the social enterprise makes and distributes, prevents one to two metric tons of CO2 from entering into the atmosphere each year. The project developers earn carbon credits off of the emissions prevented and sell these credits to generate a return on their investment. The funds they earn are used to pay back investors and to keep the project financially feasible.
Investors, who want to benefit from selling carbon credits, can direct their funds into one of these types of projects. They need to be aware, however, that there are certain factors that may influence the project’s eligibility for certified carbon credits (i.e. project location, project ownership and management, project impact, among others). Therefore, each project is evaluated on a case-by-case basis by the different quality standards. As with any investment, doing your research is essential before investing your money into an already developed project or a start-up.