This decade is pivotal for climate action, and corporations are at the forefront of this transformation. While the initial steps—measuring the carbon footprint, switching to renewable energy, and decarbonising supply chains—are increasingly well understood, the path forward remains complex, especially beyond the commonly recognised decarbonisation pathways.
For enterprises dedicated to climate objectives such as attaining net zero, simply cutting emissions isn’t enough – residual emissions also require attention, usually through the utilisation of carbon credits. These credits are vital not just as a temporary measure during emission reduction efforts, but also as a lasting component of corporate sustainability strategies, given their function in offsetting ongoing emissions.
Understanding the Landscape of Carbon Credits
Once a company has minimised emissions, the focus shifts to the residual emissions, which can be addressed through carbon credits of different types:
1. Carbon Avoidance Credits: These credits support projects that prevent potential emissions and are often linked with achieving carbon-neutral goals. For instance, investing in a project that prevents deforestation or supports renewable energy installations which displace fossil fuel-based power generation.
2. Carbon Removal Credits: Central to achieving net-zero targets, these credits fund initiatives that directly remove CO2 from the atmosphere and ensure its secure storage. Examples include afforestation where new forests are planted to absorb CO2, or technology-based projects like biochar or direct air capture (DAC).
3. Beyond Value Chain Mitigation: This approach encompasses purchasing credits that address emissions beyond a company’s direct operations, aligning with broader Science-Based Targets.
While the distinction may appear subtle, it is significant. We must eliminate billions of tonnes of CO2e to mitigate severe climate impact by 2050. This requires immediate investment from corporations and governments in carbon removal technologies to ensure their cost-effective, large-scale implementation in the future.
However, this does not exclude the role of avoidance projects in a balanced carbon credit portfolio that considers both impact and cost. Avoidance projects are vital for preserving existing carbon sinks (such as through enhanced forest management) and boosting efforts to reduce overlooked greenhouse gases like methane. These projects generally face fewer supply issues than high-quality removal efforts and provide critical time to refine reduction strategies and enhance the scalability of permanent carbon removal solutions.
Quality and Impact
Avoidance Projects: These should have a clear additionality, meaning they wouldn’t happen without funding from carbon credits. They also need to demonstrate permanence and address potential leakage—ensuring that the carbon savings are not offset by increased emissions elsewhere. An example is a project that replaces traditional mud wood-fired cookstoves with efficient cookstoves to improve efficiency and avoid respiratory problems or another project which captures methane from landfills, preventing its release into the atmosphere and converting it to energy.
Carbon Removal Projects: These are about extracting CO2 directly from the air. Nature-based solutions like enhancing soil carbon storage through advanced agricultural practices are immediate and cost-effective but limited by land availability. Meanwhile, engineered solutions like biochar, where organic materials are converted into a stable form of carbon stored in the soil, or enhanced rock weathering, which involves spreading finely ground silicate rocks on land to chemically bind CO2, offer scalable and permanent removal capabilities, with a higher community impact on ground.
Considerations while purchasing carbon credits
When formulating a strategy for purchasing carbon credits, corporations must consider a comprehensive set of factors to align their sustainability goals with operational, financial, and strategic requirements. Below is an expanded set of guidelines to help navigate the complexities of carbon credit procurement:
1. Operational Emission Reductions: To enhance sustainability and reduce reliance on carbon credits, evaluate and implement operational changes such as switching to renewable energy through solar installations or power purchase agreements, which Neufin can help in executing. Other activities can include improving energy efficiency, and optimising logistics. These adjustments can significantly decrease the need for carbon credits, thereby reducing costs and bolstering your company’s sustainability profile.
2. Goals of Carbon Credit Purchases: Clarify your primary objectives for purchasing carbon credits, whether it’s to maximise environmental impact, minimise costs, or align with specific corporate values and stakeholder expectations. Choose projects that support these goals, focusing on direct CO2 removal methods like biochar or reforestation, or emissions prevention projects such as renewable energy or methane capture.
3. Budgeting and Cost Considerations: Set a clear budget for carbon credits that takes into account both immediate and future sustainability expenses. Establish a target price per tonne of carbon to guide the selection of projects and ensure the feasibility of purchasing different types of carbon credits.
4. Timing of Carbon Credit Needs: Assess the immediate need for carbon credits to meet current carbon-neutral commitments versus long-term strategies aimed at achieving net-zero goals. Consider securing credits at today’s prices for future use to benefit from potential cost savings.
5. Sourcing and Management of Carbon Credits: Evaluate whether your company has the internal resources to effectively manage the sourcing of carbon credits, including carrying out due diligence and handling contracts. Alternatively, consider partnering with specialised firms like Neufin that can offer expertise, access to a wider range of projects, and potentially better pricing, ensuring a more efficient and strategic approach to carbon credit procurement.
Leveraging Partnerships
Given the complexity of the carbon market, forming partnerships with experienced organizations can simplify the process of sourcing, validating, and retiring carbon credits, ensuring strategic alignment and cost-effectiveness. Some benefits are:
Expertise and Specialisation: Partnering with specialized organizations provides access to expert knowledge and technical support for navigating the complex carbon market. These experts handle the intricacies of sourcing, validating, and retiring carbon credits, ensuring compliance with scientific and regulatory standards.
Risk Management: Experienced partners perform comprehensive due diligence, assessing critical factors such as additionality and permanence of carbon projects. They can mitigate risks associated with low-quality credits and ensure compliance with fluctuating environmental regulations.
Cost Efficiency and Access to Diverse Projects: Partners can offer access to a wide array of carbon projects across various sectors and geographies, enabling companies to select projects that align with their specific sustainability goals and values, while diversifying their environmental impact. Moreover, they can leverage economies of scale that reduce the costs associated with purchasing carbon credits.
In conclusion, businesses face the challenge of navigating between avoidance and removal projects, each playing a crucial role in carbon offsetting strategies. While low-quality avoidance projects may offer limited impact with the risk of greenwashing, high-quality ones can complement removal solutions within a diversified portfolio. Nature-based removal presents a cost-effective option, while permanent carbon removal remains the ultimate goal for achieving net-zero emissions. Companies should prioritize projects with clear additionality and permanence to procure carbon credits effectively, considering long-term sustainability goals and partnerships with specialized organizations for streamlined management. These decisions are crucial in this pivotal decade for climate action, shaping the path toward a more sustainable future.
