The Four Building Blocks of a Reliable Carbon Credit

Let’s face it. Even with all the board buy-in, investor interest, and political will in the world, global decarbonization is vulnerable to shortfalls in timing and technology. Put simply, certain emissions cannot be eliminated with existing solutions. 

That puts companies in a tight spot. For those under mounting shareholder pressure to align with the net-zero terms of the Paris Agreement, carbon credits are integral — if not inevitable.

So, we were alarmed to learn from Bloomberg that companies bought just 155 million offsets in 2022 — down 4% from 2021 — “due to fears of reputational risk from purchasing low-quality credits.”

Coupled with risk mitigation, best-practice guidance should put buyer fears at ease. Since Bloomberg went to press, the Integrity Council for the Voluntary Carbon Market (ICVCM) published its Core Carbon Principles — the “global benchmark for high-integrity carbon credits” — to help dispel any confusion. 

Here’s what buyers should look out for in their carbon credits.

1. High quality

To keep net emissions to zero, any mitigating activity must reduce or remove from the atmosphere emissions equivalent to those it was designed to offset. The mitigative effect must therefore be:  
  • additional, meaning the emissions reduction wouldn’t have occurred in the absence of the credit sale. Had the project and associated reduction happened regardless of the VCM, then it cannot be used in lieu of nor be claimed to have “netted out” another emission.
  • permanent or durable, meaning the project sequesters carbon for decades to centuries. Were the project to be reversed within a short timeframe, it would merely delay rather than negate the impact of your emission. (Any reversal should, at least, be compensated.)
  • not overestimated, or double counted, or oversold, meaning one credit is always equivalent to one ton of emissions. Be it the fault of the project developer, broker, or buyer, one credit cannot account for more than the equivalent emissions for which it’s claimed. Otherwise, net atmospheric emissions will rise.

2. Positive impact

Even if it ticks all the boxes for ‘quality’, a mitigating activity has little net benefit if it wreaks indirect damage on the environment or society it was designed to protect. At a minimum, the activity must negate:
  • social or environmental harm, nor otherwise undercut sustainable development; and
  • emissions leakage, meaning any emissions generated elsewhere outside its scope.
Ideally, however, the activity goes beyond ‘do no harm’ and creates positive co-benefits for the environment, community, and economy in which it operates.

3. Good governance

Certifying direct and indirect impact is no small feat. The burden of proof cannot lie with the buyer; conversely, any absence of validation is a red flag. Carbon credits should be grounded in adequate:
  • methodology, with emission reductions quantified in line with scientific data and a recognized methodology; and
  • verification, which is to say, identified, recorded, and monitored by a credible third party, such as a registry.

4. Risk mitigation

Even if not a feature of quality, risk mitigation is a key characteristic of reliability. Though the right guidance can help ease buyer fears, it does not eliminate risks associated with the transaction entirely. Because let’s face it (again): Unfortunately, risks remain at the level of both project and verification issuance, as has been underscored by the recent wave of negative headlines.  And that (again) puts companies in a tight spot. Corporate buyers cannot afford to fear the VCM for as long as they cannot afford to reach their decarbonization goals in the absence of carbon credits. Given the complexity and variability of project data, however, it’s unrealistic — and, frankly, unfair — to expect an individual CFO or CSO to sign off on the quality, impact, and governance of each and every credit.
Oka, The Carbon Insurance Company provides that assurance instead. Our tailored insurance products ensure that each credit baked into your transition plan boasts the high quality, positive impact, and good governance you should expect of a reliable project. It’s the one missing screen you need to safeguard your investment and reputation.

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