Carbon credits are valuable tools for reducing an organisation’s carbon footprint and contributing to global climate goals. However, making informed decisions about buying or investing in carbon credits requires careful consideration. Companies should prioritise several key factors to ensure their investments are effective, credible, and aligned with their broader sustainability goals.
1) Ensure verification and certification
The integrity and quality of carbon credits hinges on rigorous verification and certification processes. Prioritise credits verified by reputable third-party standard setters, such as Verra, Gold Standard, or the Climate Action Reserve. These standards ensure that the projects genuinely reduce or remove carbon emissions and meet strict criteria for additionality, permanence, and monitoring. Additionally, adhering to the Integrity Council for the Voluntary Carbon Market (ICVCM) guidance can help ensure purchases align with best practices and contribute to meaningful emission reductions.
2) Assess project type and impact
Understand the type of carbon project to align with your environmental and social responsibility goals. Projects can range from reforestation and renewable energy to methane capture and energy efficiency. Each type has different environmental and social impacts. For instance, reforestation projects sequester carbon and enhance biodiversity and support local communities. Select projects that deliver tangible benefits beyond carbon reduction, considering both environmental and social impacts.
3) Evaluate geographic location
The location of a carbon project can influence its effectiveness and the co-benefits it provides. Projects in developing countries often offer additional social benefits, such as job creation and improved community resilience. However, they may face varied regulatory and operational challenges. Assess the regional context to ensure the project’s sustainability and compliance with local regulations and community needs.
4) Consider permanence and risk of reversal
Permanence refers to the long-term sustainability of carbon sequestration. Projects like afforestation may face risks such as deforestation or natural disasters that could reverse carbon gains. Evaluate mechanisms like buffer pools or insurance to address these risks. Investing in projects with strong safeguards ensures that the carbon credits represent genuine and lasting emission reductions.
5) Choose between removal or reduction
Decide whether to prioritise carbon removals or emission reduction credits. Carbon removals, though often costlier, offer measurability and tracking advantages. Conversely, emission reduction projects, such as forest conservation, may face scrutiny for overstating climate benefits. Seek independent expert guidance to build a robust carbon credit strategy based on evidence, helping navigate complex decisions and choosing the right type of carbon credits.
6) Decide on direct or indirect purchasing
Organisations can purchase carbon credits through various channels, each with its advantages. Direct purchasing from project developers offers transparency and direct investment options. Brokers provide market expertise but require ethical verification. Retailers offer convenience but need scrutiny of credit credibility. Exchanges provide quick access and potential profits but less transparency, necessitating careful evaluation of project credibility and regulatory compliance.
7) Assess political risk
Political factors can affect carbon projects, especially concerning the implementation of Article 6.4 of the Paris Agreement. Governments might decide to use credits for their nationally determined contributions, impacting project viability. Stay informed about political changes that might affect projects. For instance, recent actions by the Indonesian government have caused significant implications for carbon credit purchasers.
8) Consider insurance
Insurance can mitigate risks associated with carbon credit projects. Carbon-specific insurers offer products covering non-delivery, political risk, and weather-related issues. Additional coverage ensures financial reinstatement or replacement of underperforming credits. Insurers’ critical project analyses also provide an extra layer of confidence in project quality.
9) Prioritise transparency and reporting
Transparency in how carbon credits are generated, verified, and retired is essential for maintaining trust and accountability. Look for projects providing detailed and accessible reports on their methodologies, outcomes, and verification processes. Clear reporting allows you to track the impact of your investment and credibly communicate your sustainability efforts to stakeholders.
10) Make informed claims post-purchase
Avoid overstating climate claims to prevent legal and reputational risks. The Voluntary Carbon Markets Integrity (VCMI) Claims Code of Practice outlines how to make credible claims, differentiating between levels of accomplishment. Adhere to this framework to safeguard against potential criticism and ensure transparent and accurate communication of your climate efforts.
By following these steps, organisations can make informed and responsible decisions when purchasing carbon credits or investing in climate projects, ensuring that their actions contribute effectively to global climate goals.
