As the impacts of global warming continue to worsen, governments, corporations, and individuals need to act quickly in reducing their greenhouse gas (GHG) emissions. However, to do so at a large scale, a systematic and structural change is required, which can be highly costly in the short-term.
When accounted for correctly, the generation of carbon offset credits (or simply “carbon credits”) from emissions-reducing projects can be a cost efficient way to combat climate change in the short run as entities and individuals shift towards greener practices over time.
The profits earned from the sale of carbon credits can ensure the sustainability of these emissions reduction projects as they are reinvested back into the funding of the project operations over a period of time.
But how can a project be ensured to reduce or remove GHG emissions? And where can the project be verified and registered to generate carbon credits?
What is a carbon offset program?
Carbon offset programs are established by organisations in order to set rigorous standards and methodologies. This assess the eligibility of different types of projects to issue carbon credits. Apart from that, it includes a set of carbon accounting mechanisms to analyze the additionality that the GHG emissions would not have been avoided or removed without the sale of carbon credits to fund the project activities – which is an essential part of carbon credit projects.
Each offset program also employs external verifiers (known as Designated Operating Entities (DOE) or Validation/Verification Bodies (VVB)) to review the projects based on the standards used. Once a project is validated and verified under an offset program, it is listed publicly on the project registry , which is also typically managed by the offset program.
Then, subject to periodic monitoring and verification, the project can be issued carbon credits. Every offset program has their own labelled unit of carbon credit Each unit equivalent to one tonne of CO2 equivalent (tCO2e) emissions , reduced within a specific crediting year known as ‘vintage’ year. The issued carbon credits are shown on the respective offset program’s registry, where they can also be transferred or ‘retired’ (i.e., removing the credits from the registry from further transfer or use for claims).
What are the different types of international carbon offsets?
Today there is a large variety of carbon offset programs. They range from local to international offset programs. Some of them are also operated by regulatory bodies, while others are managed by private non-governmental organizations (NGOs). However, this article, focuses on some of the most well-known international carbon offset programs, particularly within the voluntary carbon market.
The CDM was established by the United Nations (UN) under the Kyoto Protocol. It is part of the UN Framework Convention on Climate Change (UNFCCC) and is overseen by the CDM Executive Board (EB).
The CDM was initially created to offer developed nations (Annex I countries) a cost-effective mechanism to partly meet their emission reduction targets under the Kyoto Protocol. This, by purchasing carbon credits generated from emission reduction projects based in developing countries (non-Annex I countries). Therefore, the CDM only permits emission reduction projects established in non-Annex I countries to be registered and generate carbon credits under its registry, known as Certified Emission Reductions (CERs).
The initial idea of the mechanism is for developed countries to finance emission reductions initiatives in developing countries, while also aiding the developed countries in their own efforts to meet their climate targets to a certain extent. Furthermore, the proceeds from 2% of the CERs issued by the CDM contribute towards the UNFCCC Adaptation Fund , which finances projects/programs in vulnerable developing countries under the Kyoto Protocol to combat the harmful effects of climate change.
Though the CDM started out as a regulated mechanism, CDM CERs are now also commonly bought, traded, and ‘cancelled’ (retired) by public and private institutions alike on a voluntary basis.
The VCS is an international voluntary carbon offset program that is run by the US-based non-profit corporation, Verra. The VCS is managed and overseen by the VCS Program Advisory Group and the Verra Board of Directors.
Emission reduction projects based in almost any country can be eligible to be registered under Verra’s VCS registry, subject to Verra’s registration, validation, and verification process. Like most other carbon offset programs, registered projects range from renewable energy projects, afforestation & reforestation, to smaller community-based projects. Registered VCS projects can be issued carbon credits known as Verified Carbon Units (VCUs).
Though registered projects under the VCS program are only required to have GHG emissions reduction attributes, Verra also oversees additional project labels/standards such as the Climate, Community & Biodiversity (CCB) Standards and the Sustainable Development Verified Impact Standard (SD VISta), which can be used to certify projects that are proven to have additional environmental or social benefits in accordance with the stated guidelines.
Following the progress of the UN’s Sustainable Development Goals (SDGs), the GS was spearheaded in 2003 by World Wildlife Fund (WWF) and other international NGOs, and administered by the Swiss-registered non-profit, the Gold Standard Foundation.
The GS provides a carbon offset program that rigorously ensures the environmental integrity of emission reduction projects. Each project registered under the GS program is also required to undergo additional assessment to demonstrate their benefit to the local community and their contribution towards the different UN SDGs. Hence, though GS accepts projects from almost every country, a large portion of GS projects are typically located in developing countries where they are most impactful.
All certified GS projects are listed on the GS registry as of 2018. Their respective contributions towards specific UN SDGs are also shown on the project pages, along with the issued credits known as GS Verified Emission Reductions (VERs).
Emission reduction projects based in almost any country can be eligible to be registered under Verra’s VCS registry, subject to Verra’s registration, validation, and verification process. Like most other carbon offset programs, registered projects range from renewable energy projects, afforestation & reforestation, to smaller community-based projects. Registered VCS projects can be issued carbon credits known as Verified Carbon Units (VCUs).
Though registered projects under the VCS program are only required to have GHG emissions reduction attributes, Verra also oversees additional project labels/standards such as the Climate, Community & Biodiversity (CCB) Standards and the Sustainable Development Verified Impact Standard (SD VISta), which can be used to certify projects that are proven to have additional environmental or social benefits in accordance with the stated guidelines.
The Plan Vivo system started in 1994 as a collaboration project between the University of Edinburgh, El Colegio de la Frontera Sur, and other local partners to aid communities in Chiapas, Mexico with a framework for tree planting activities that could gain funding from carbon markets. By 1997, the project Scolel’te became the first project to generate carbon credits for the voluntary carbon market. Ever since, the Scottish-based non-profit Plan Vivo Foundation has continued to work with poor rural communities and farmers/smallholders to sustainably manage their lands through Plan Vivo projects.
Nowadays, Plan Vivo has evolved into an international offset program that specifically focuses on agriculture, forestry, and other land use (AFOLU) related projects, with its own standard (the Plan Vivo Standard), project registry, and crediting system that issues Plan Vivo Certificates (PVCs) to its registered projects.
One PVC unit goes beyond the sequestration or mitigation of one tCO2e as they also represent other social and environmental benefits, such as biodiversity conservation and sustainable livelihoods for communities. Furthermore, unlike other offset programs, Plan Vivo guarantees that a minimum of 60% of the money from every PVC bought goes directly to the participants such as the communities themselves. This ensures “fairly traded carbon” between the participants and project coordinators.
The ACR was initially established in 1996 as the first private voluntary GHG registry in the world. Now, it has become a non-profit carbon offset program under the US-based Winrock International. Its own standard outlines the registration and verification of carbon offset projects adhering to approved carbon accounting methodologies. ACR also issues carbon credits for projects listed in its public registry.
US-based projects under ACR may be eligible to issue compliance credits known as Registry Offset Credits (ROCs), which can be converted into Air Resources Board (ARB) approved Offset Credits for the compliance market under the California Cap-and-Trade program. Otherwise, credits issued are known as Emission Reduction Tons (ERTs) and are used in the voluntary carbon market.
Though ACR is recognised as an international offset program, almost all ACR projects are currently situated in the US with only a handful located outside the country, mostly within the American continent.
The CAR is a US-based carbon offset program that accepts emission reduction projects within the North American region, mostly in the US. It has its own standards for verification, oversees independent third-party verification bodies, and tracks the issuance and transaction of credits through its public registry.
The CAR is the successor of the California Climate Action Registry, which was established in 2001 by the State of California to “address climate change through voluntary calculation and public reporting of emissions”. Its expertise in emissions reductions accounting became well-known in the North American carbon market.
Similar to the ACR, the CAR is also recognised as an offset project registry for the compliance market under the California Cap-and-Trade program; therefore, some projects may also issue ROCs. Nevertheless, all projects successfully registered under the CAR can issue carbon offset credits known as Climate Reserve Tonnes (CRTs) which can be traded in the voluntary carbon market.
The GCC is one of the most recently established international voluntary carbon offset programs. Based in Qatar since its inception in 2016, it is the first of those programs within the Middle East and North Africa (MENA) region. It is overseen and was initiated by the Qatar-based research organisation, Gulf Organization for Research and Development (GORD).
GCC aims to play a part in achieving sustainability and “low-carbon world economy” by encouraging the development of emission reduction projects from around the world under its program. However, GCC puts extra attention to projects within the MENA region, which it believes has been “under-represented in carbon markets” under the existing carbon offsetting programs.
Similar to previous carbon offsetting programs, GCC encompasses the complete governance structure, project registration system, and documentation framework. In addition, it applies a “Project Sustainability Standard” and awards certification labels to encourage projects to contribute towards the UN SDGs. Moreover, projects that can prove and verify that their activities do not cause any net-harm to the environment and/or the society are rewarded with the Environmental (E+) and the Social (S+) No-net-harm Labels, respectively.
After a project is successfully registered under GCC, and the calculated emission reductions or removals for a certain period have been validated and verified, it is issued carbon credits known as Approved Carbon Credits (ACCs).
Since GCC is a relatively new carbon offset program, the number of registered projects is lower compared to other programs. Only 10 projects are shown publicly on the registry, 5 of these have issued credits for public view. Even though, the total number of registered projects is not publicly known yet, GCC claims that as of November 2022 over 1,450 emission reduction projects from 40 countries have been submitted for approval, which could have the potential to issue around 2 billion ACCs over 10 years of crediting period.
Some comparisons between international offset programs
A project owner can choose to register their project under any carbon offset program. This depends on the eligibility of project type and location and, if those conditions are met, on each project owner’s respective objectives and preferences. It is important to bear in mind that one same project cannot actively issue carbon credits in more than one carbon offset program, as this may present a risk of double counting whereby one offset credit of a specific vintage year generated from one single project is being sold twice.
As previously mentioned, each carbon offset program typically has their own set of project requirements in terms of standards and methodologies. However, some offset programs may approve of the project standards and methodologies used by other offset programs, to a certain extent. For example, some CDM methodologies can be accepted by GS, subject to some additional criteria, and thus can be issued GS CERs. Technical guidelines on the project requirements for the different offset programs can be found on each of their respective web pages.
Volumes of credit issuances and retirements (in the case of CDM, retirements are known as cancellations) also vary between different offset programs. Table 1 below shows this variation in the years 2021 and 2022, which can give a basic indication on the market size of each carbon offset program as of lately.
| Issuances (Million tCO2e) | Retirements (Million tCO2e) | |||
|---|---|---|---|---|
|
|
2022 |
2021 |
2022 |
2021 |
|
Clean Development Mechanism (CDM)
|
138.75
|
91.01 |
43.89 |
37.74 |
|
Verified Carbon Standard (VCS)
|
201.57
|
295.08
|
116.27 |
129.65 |
|
Gold Standard (GS) |
43.61 |
43.57 |
27.75 |
25.16 |
|
American Carbon Registry (ACR)
|
21.90
|
8.83 |
6.41 |
2.48
|
|
Climate Action Reserve (CAR)
|
12.82 |
5.48 |
4.65 |
3.89 |
Source: Clear Blue Markets.
Notes:
– Data on Plan Vivo and GCC not yet available.
– These carbon credit issuances and retirements/cancellations do not necessarily represent emission reductions from vintages 2021 and 2022; i.e., the carbon credits may represent emission reductions from vintages 2020 and earlier but have only been approved for credit issuance, or only have been retired/canceled, in 2021 or 2022.
Issuances
In terms of issuances, VCS has issued the most volumes of carbon credits both in 2021 and 2022, followed by CDM. As expected, ACR and CAR have the lowest issued volumes since they only mainly cover projects within the US or the North American region.
Correspondingly, VCS also has the largest volume of carbon credit retirements, which may indicate that VCUs could be the most transacted type of carbon credits as of recently compared to the other voluntary carbon offset programs. This could be simply due to buyer preferences, or other several reasons, such as the possible project impacts, the available volumes that can be bought, or the pricing per credit.
Since the voluntary carbon market is unregulated, the carbon credit prices for projects under these carbon offset programs can greatly vary depending on a number of factors. Some renowned platforms and organisations such as CBL, AirCarbon Exchange, and S&P Global have tried to publish and keep track of average carbon credit prices, grouped in specific categories, based on daily trades in the voluntary carbon market overtime.
Prices generally depend on the project type, geographical location, and the vintage year. For instance, high impact community-based projects such as clean cookstoves distribution in rural areas of least developed countries can generate higher priced carbon credits than a renewable energy project with no added impacts from an older vintage. Prices can also be affected by the offset program under which a project is registered. For example, a GS or PV credit price may be higher than a CDM credit price because of the added impacts that are required and valued under GS or PV, as explained previously.
At ALLCOT Trading, we aim to trade credits from the various types of offset programs with a fair market price. If you want to buy or sell carbon credits in a transparent, win-win scenario, contact us and together we will make it happen.
