In an age of climate crisis, responsible businesses and organisations worldwide are urgently exploring ways to reduce their carbon emissions, raise their energy efficiency, and run their operations from clean energy. 

Intelligent green solutions are being developed in different continents and industries on an almost daily basis. But where carbon emissions remain, a practical alternative is to offset them with carbon credits.

What is a carbon credit?

A carbon credit generally represents one metric ton of carbon dioxide or the equivalent amount of a different greenhouse gas avoided, removed, or reduced during business activities or production processes. 

Verification of carbon credits is issued in accordance with carbon offset standards such as the United Nations Clean Development Mechanism (CDM), the VCS programme by Verra, and Gold Standard, a system set up by the World Wide Fund for Nature (WWF) and other international non-governmental organisations. 

Each carbon credit purchased by an individual or organisation is permanently retired in the corresponding offset registries to prevent it being reused in the carbon market. 

Carbon credits and renewable energy certificates

As well as carbon credits, there are alternative tools on the market that can meet the different environmental objectives of individuals or organisations. These include renewable energy certificates (RECs), which represent the intangible environmental attributes of energy generated from renewable projects. CLP offers both carbon credits and RECs to its customers. 

From the perspective of corporate environmental reporting, carbon credits can be used to offset emissions classified under three categories: Scope 1 covers a company’s direct emissions; Scope 2 covers indirect emissions from the generation of purchased energy consumed by a company; and Scope 3 covers other indirect emissions. 

Typical Scope 3 emissions include air travel, embodied carbon in buildings, and paper consumption in offices. RECs, meanwhile, can be used to address an organisation’s Scope 2 emissions only. 

Carbon credits and RECs support businesses and organisations that wish to fulfil specific qualification criteria for different industry standards and commitments. Such standards and commitments can help organisations take decisions based on their decarbonisation goals. 

RE100, for instance, is a global coalition of businesses committed to transitioning to 100% renewable electricity by a selected target year no later than 2050. RECs can be used to support organisations in meeting their RE100 targets by allowing them to make renewable energy consumption claims. Carbon credits are not applicable in this case. 

Carbon credits can also be used to fulfil the standards of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which aims to achieve carbon-neutral growth for international aviation emissions through carbon offsets. 

When buying carbon credits, CORSIA members are required to comply with a set of eligibility criteria, such as carbon credit standards and retirement timeframes. 

Building a carbon credit culture

As carbon credits are increasingly used to offset operational and individual carbon emissions, there is also an emerging trend for the adoption of carbon credits in business innovation.

CLP has teamed up with maritime companies to explore innovative ways to drive the industry’s low-carbon transition, for example. By bundling CLP Carbon Credits with shipping services, maritime customers can opt in and offset carbon emissions from shipments, making customers accountable for their value chain emissions.

Besides innovative carbon-neutral service and product offerings, there is a rising demand for carbon credits to offset emissions generated from large-scale business events such as conferences, symposiums, and exhibitions. 

As a way of engaging with participants and raising environmental awareness, event organisers use carbon credits to compensate for the event’s unavoidable emissions, and in some cases offer carbon credit certificates to guests to demonstrate how they have offset their individual carbon footprints.

Scaling the future of voluntary carbon markets

As a rising number of countries and cities make carbon neutrality pledges and businesses are scaling up their climate action, a robust global voluntary carbon market to enhance carbon credit quality and accelerate the transition is much needed. Such a market, for instance, will help settle the debates over the quality and integrity of certain types of carbon credits. 

The Taskforce on Scaling Voluntary Carbon Markets (TSVCM), a private sector-led initiative, is currently trying to bring all parts of the value chain on board to come to a standard taxonomy for carbon credits through tools such as credit quality classifications and verification mechanisms. By doing so, it aims to build the necessary infrastructure solutions that will uphold the integrity of global decarbonisation. 

In July 2021, TSVCM announced to form an independent governance body by year end to set the legal principles that will guide the market and the criteria for carbon credit integrity, as well as standardise the carbon market’s operations. This is a move forward but scaling the global voluntary carbon market is no simple matter. 

To create healthy voluntary carbon markets, there needs to be a balance of risks and opportunities based on the circumstances of different jurisdictions, and an abundant supply of offsets at various price levels to support them in driving their decarbonisation agendas. 

As market volumes of nature-based carbon credits will not match emissions avoidance credit volumes generated from renewable energy for some time, avoidance credits are expected to continue playing a significant role in the global pathway to a net-zero future.