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A fresh look at types of carbon credits. By Martijn Dekker

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Not all #carboncredits are created equal. It's important to understand the options available on today's #carbonmarkets and which are most impactful when it comes to reaching true net zero. Our CEO Martijn Dekker offers a simple overview in this article.

Carbon markets — and the carbon credits behind them — find themselves perennially in the news these days for a wide variety of reasons… some good, some not. One consistent message is ringing through loud and clear: the quality of carbon credits varies. There is more focus than ever on distinguishing “good” carbon credits from “bad” carbon credits (i.e., high-quality, high-integrity carbon credits vs. “ghost” credits that don’t live up to their carbon claims).

This is front-and-center for carbon credit buyers, who are understandably focused on avoiding “bad” credits and not exposing themselves to greenwashing criticism, legal risk, or both. More than ever, heightened focus is being paid to “good” credits that help buyers move their emissions bottom line and the overall global trajectory truly toward net-zero.

Making that distinction starts with understanding the types of carbon credits available on the market. Much like the quality of the carbon credits themselves, the answer varies — depending on who is doing the defining. In this article, we’ll take a closer look at the most-common types of carbon credits as defined by several prominent organizations, including cross-cutting lessons for voluntary carbon markets as a whole.

What are carbon credits and how are they classified?

A carbon credit is a generic term for any tradable certificate or permit representing the avoidance, reduction, sequestration, storage, or other offsetting of greenhouse gas (GHG) emissions. One carbon credit is equal to one metric ton of CO2 equivalent (tCO2e).

From this common definition, carbon credit classifications vary according to the types of projects behind them. In the voluntary carbon market, different organizations have different ways of classifying or categorizing credits. Three of the most-prominent classification schemes include: 

McKinsey & Company (and others) break down carbon credits into four main categories:

Avoided nature loss, such as prevented deforestation;
Nature-based sequestration, such as reforestation or regenerative agriculture;
Avoided or reduced emissions, such as cleaner cookstoves or energy efficiency projects; and
Technology-based atmospheric CO2 removal, such as direct air capture or carbon capture on power plants and steel mills.

Oxford University’s Principles for Net Zero Aligned Carbon Offsetting starts by making a fundamental, primary distinction between credits based on a) emissions reductions vs. b) carbon removals. Those break down further ultimately into five types of carbon credits — compared to McKinsey’s four — largely based on whether and how long carbon is stored:

Avoided emissions (or emissions reductions without storage), such as cleaner cookstoves or renewable energy;
Emissions reductions with short-lived storage, such as avoided damage to ecosystems;
Emissions reductions with long-lived storage, such as carbon capture and storage (CCS) on industrial facilities or fossil-burning power plants;
Carbon removal with short-lived storage, such as reforestation; and
Carbon removal with long-lived storage, such as direct air capture paired with carbon mineralization.

The South Pole Group (and others) take yet another approach to carbon credit classification. They start with three primary categories: a) avoided GHG emissionssuch as building new renewable energy to displace fossil-fueled electricity generation; b) removed emissionssuch as carbon sequestration through reforestation; and c) captured and/or destroyed emissionssuch as methane capture from wastewater treatment and landfills. But South Pole Group then organizes carbon credit projects into four groupings:

• Nature-based solutions, which lumps projects such as prevented deforestation and reforestation into the same category;
Renewable energy, including solar, wind, hydro, and geothermal projects;
Community projects, such as cleaner cookstoves; and
Waste-to-energy projects, such as biogas from landfills, industry, or biomass.

At least three takeaways become immediately clear to us: 1) There is no shortage of ways to classify the various types of projects and associated carbon credits. 2) Regardless of how carbon credits are categorized, the voluntary carbon market will continue to play an important role in moving toward a net-zero future. 3) The distinction that matters most now is not how carbon credits get bucketed, but rather identifying those carbon credits that derive from high-quality, high-integrity projects.

Separating the good from the bad

So, what then constitutes a “good” carbon credit? Or perhaps more bluntly, how can we determine if a carbon credit is “real” (i.e., based on true impact)? Classifying any given carbon credit according to the conventions we describe above is far less important than ensuring that carbon credits embody two key principles:

Additionality: The most vital carbon credits are those that support projects that represent new avoided emissions, emissions reductions, or carbon removals. They should not merely reallocate carbon claims in the absence of any material influence on the global net emissions balance.
Permanence: Moreover, high-quality carbon credits should support projects that avoid, reduce, or remove emissions for the long term. They should represent durable actions that have a low risk of reversal in the foreseeable future.

Adhering to these core aspirations can help the VCM evolve to become better and stronger. And these are two reasons why we’re so enthusiastic about what we’re doing here at ZeroSix.

A new era — and new kind — of high-quality carbon credits

Scientists estimate that 60% of the world’s oil and gas reserves and 90% of coal reserves must be left in the ground — unextracted and unburned — through 2050 to stay within Earth’s carbon budget. ZeroSix carbon credits focus on projects that do just that.

We are creating financial incentives and market-based mechanisms to shut in the least-efficient, most-polluting hydrocarbon wells. Oil and gas producers retire active wells early, leaving the underground fossil reserves permanently where they’ve already been for millions of years. We then convert those unextracted, unrefined, uncombusted barrels of oil and cubic feet of natural gas into high-integrity carbon credits.

Learn more about this new era of carbon credits and how ZeroSix can help you achieve your net-zero goals by reading the whitepaper on our homepage.

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