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CARBON CREDITS, OFFSETS, AND THEIR MARKETS
1/17/24
What are carbon credits?
Carbon credits are a tradable financial instrument that represent a reduction of one metric ton of carbon dioxide or carbon dioxide equivalent emissions. They are a way to quantify and monetize emissions reductions achieved through various activities, such as renewable energy projects (solar power), reforestation, and energy efficiency initiatives. These credits are created when a company or group reduces the amount that would be emitted of carbon dioxide by 1 ton. The credits are certified by 3rd party groups such as Gold Standard or Verra (these 2 are the most well-known).
There are two markets when it comes to carbon credits:
Compliance markets
These markets are ones that have a regulatory body governing the amount of emissions that are allowed, most of whom use a cap-and-trade system. This is a system where the regulatory body sets a cap on the emissions allowed for a specific region or governed area. Each company within that region has a set allocation for the overall “cap.” Then, companies can either trade the “carbon permits” away for cash if they are under the cap, or buy permits to offset their emissions from other companies if their emissions exceed this cap. The regulatory body only gives out a certain number of permits to companies to manage the overall level of emissions in the area.
Voluntary markets
These markets are where companies and groups create carbon offsets through voluntary efforts to meet their own carbon goals. Unlike carbon credits, which are permits established by the regulatory body within compliance markets, carbon offsets represent one metric ton of CO2 that has been avoided or permanently removed from the atmosphere. The demand for these offsets is driven by companies that have set emissions targets for their stakeholders. Companies that produce these offsets either sell the credits earned through these actions to other companies or keep them for themselves for marketing purposes.
How does Crete United fit in?
- Renewable Energy: When Crete United builds a solar project for a customer, the green energy generated provides carbon offsets or credits for any reduction in carbon emissions related to switching from brown power to green energy. Typically, the owner of the solar array retains rights to the associated offsets or credits. Crete United can use carbon credits/offsets either as an additional point of value for these projects or, if retaining the rights, using these credits/offsets for ourselves.
- Energy Efficiency: When Crete United helps a company reduce their electrical or gas consumption through energy efficiency projects such as lighting or HVAC retrofits, the avoided emissions related to the reduction in power usage would constitute carbon offsets or credits and the same benefits as above are relevant.
SOURCE: GRAND VIEW RESEARCH, CARBONCREDITS.COM
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