Carbon Credit Investing
The average American has a carbon footprint of 16 tons, one of the highest globally. It’s easy to see why so many individuals and businesses are seeking ways to reduce their carbon footprint and make a difference for the planet.
But it’s also a challenge to eliminate emissions and become carbon neutral. To help, carbon credits are a valuable tool that can offset your emissions with investments in eco-friendly projects and activities like tree planting, renewable energy, and livestock waste management. The global carbon.credit market is expanding rapidly as companies, governments, and individuals seek to buy carbon credits to help them meet their greenhouse gas reduction goals.
However, it can be hard to know where to start and how to choose a quality carbon credit program. There are two major means to purchase carbon credits: the voluntary carbon market (VCM) and the compliance/regulated carbon market. The VCM is more loosely regulated and offers lower transaction costs but may have more delivery risk. The compliance/regulated carbon market is governed by laws and systems like Emission Trading Schemes (ETS) that set reduction targets and price a cap on emissions permits.
Carbon Credit Investing – How to Choose the Right Carbon Credit Program
When you decide to invest in carbon credits, you must understand the criteria used to evaluate projects and programs and select ones with a high level of additionality, permanence, and measurability. This guide will help you understand these concepts so you can find the right carbon credit investment for you.
The additionality criterion measures whether the project you’re investing in adds new emission reductions to the market or is just shifting existing ones from another source. A good example is a wind farm, which adds energy capacity to the grid and reduces emissions from fossil fuel power plants that would otherwise have been produced. The permanence criterion is measured by the longevity of the carbon reductions. Projects that have a low risk of leakage and that stay in effect for over 100 years are considered permanent, while those with higher leakage risks or that are shorter term are temporary.
While there are many options for buying carbon credits, the best way to do so is through projects that remove emissions directly from the atmosphere. Some examples are direct air capture, which sucks carbon dioxide out of the air and stores it underground, and carbon capture and storage, which removes emissions from coal-powered power plants and stores them in volcanic rock for the long term.
The best carbon credits are verified under a reputable standard and have measurable statistics to show that the emission reductions are real. In addition, it is important to look for projects with high adequacy, as this can be an indicator of the reliability of the measurement and reporting methodologies. It’s also important to ensure the project is transparent and accessible so you can verify the data. In some cases, this requires visiting the site and observing the project in person. This can be particularly challenging in developing countries.