CO₂ compensation through carbon credits: An overview

|  July 20, 2024

🕓 Reading time 4 minutes

Table of contents

1. What are carbon credits?

2. What principles must carbon credit projects meet?

3. Who provides standards, who verifies and where does action take place?

4. How can SMEs use carbon credits and does it make sense?

1. What are carbon credits?

Carbon Credits, also known as CO2 certificates, are tradable units, who represent the law, one ton of carbon dioxide or an equivalent amount of another greenhouse gas. One carbon credit corresponds to one ton of CO2-equivalent emissions.

The credits are generated through climate protection projects that either aim to to reduce existing emissions or avoid future emissions. These projects can be in areas such as renewable energy, reforestation, energy efficiency and waste management. 

2. What principles must carbon credit projects meet?

So that projects Carbon Credits To generate CO2 emissions, they must meet certain principles and criteria. These principles ensure that the projects actually contribute to reducing emissions, are traceable, and do not have negative social or environmental impacts.

The most important principles are:

Additionality

The project must deliver additional emission reductions that would not have occurred without the project.

Verifiability

Emission reductions must be measurable and verified by independent third parties.

permanence

The reductions must be permanent and not be reversed by future emissions.

3. Who provides standards, who verifies and where does action take place?

Quality standards

The quality and credibility of Carbon Credits are guaranteed by various international standards and certification programs. The most well-known standards include:

• Verified Carbon Standard (VCS) from VERRA: Provides detailed requirements and methods for quantifying and verifying emission reductions.
• Gold Standard: Founded in 2003 by a group of NGOs led by the World Wide Fund for Nature (WWF), it sets high standards for environmental integrity and sustainable development and supports projects that bring significant social and ecological benefits.
• Puro.earth: Founded in 2019, the platform only certifies projects that permanently store emissions. Avoided or reduced emissions are not included.

Testing and verification

The projects are audited and verified by independent third parties, so-called verifiers or auditors, who ensure that the projects comply with the established standards. Examples include TÜV Nord, SGS, and Bureau Veritas.

Trade

Carbon Credits are traded on specialized markets, both regulated markets such as the European Emissions Trading System (EU ETS) and voluntary markets.

The EU Emissions Trading System (EU ETS) sets a cap on greenhouse gas emissions for certain companies and allows companies to trade emission allowances. These allowances can be traded, so that companies that emit less can sell their excess allowances, while those that emit more must purchase additional allowances. Penalties for non-compliance ensure that it is more economical to invest in clean technologies than to exceed the limits.

On voluntary markets, companies and individuals can purchase credits to offset their emissions. The respective standards maintain a register to prevent duplicate use of certificates.

4. How can SMEs use carbon credits and does it make sense?

Small and medium-sized enterprises (SMEs) can Carbon Credits to offset their own emissions and contribute to global CO2 reduction.

The use of Carbon Credits can be useful for SMEs in several ways:

• Compliance with regulatory requirements: In some industries, regulatory requirements or voluntary industry standards may require the use of Carbon Credits require or promote.
• Net Zero Targets: Who “Net Zero” according to SBTi remaining unavoidable emissions can be offset by Carbon Credits balance.
• Improving the company image: Through the use of Carbon Credits SMEs can demonstrate their environmental responsibility and improve their image among customers, partners and investors.

However, it is important for SMEs to carefully select which Carbon Credits They should ensure that the credits come from credible and certified projects that comply with the principles outlined above. This ensures that their investments actually contribute to emissions reduction and deliver sustainable benefits.