What are the different types of carbon credits in the Voluntary Carbon Market?
As the voluntary carbon market has grown, each standard developed their own methodologies for categorizing carbon offset projects and verifying the outcomes. And, while there is some overlap, the five major standards for voluntary carbon markets list a combined total of 96 different project types. On top of that, there is a collective total of more than 420 methodologies supporting the development, registration, and trading of carbon credits. No wonder carbon markets are viewed as being highly complex and opaque! This series aims to bring greater clarity and transparency to the Voluntary Carbon Market to help participants make more informed decisions. This introduction article will cover the different types of carbon credits available in the market and as defined by Viridios AI’s (VAI’s) carbon project taxonomy through its platform VAI. We’ll explore the following topics:
- A comparison of carbon project types by carbon standard
- Impact of inconsistent project types on the voluntary carbon market
- How VAI developed a standardized carbon project taxonomy
- The VAI carbon project taxonomy
- How can VAI project data help you meet your goals?
Future articles will focus on deep dives of each project category.
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A comparison of carbon project types by carbon standard
The five major standards (in terms of volumes and number of projects) in the voluntary carbon market are as follows:
- Clean Development Mechanism (CDM): 15 sectoral scopes, 211 methodologies
- Verified Carbon Standard (VCS): 16 sectoral scopes, 104 methodologies
- American Carbon Registry (ACR): 15 project types, 47 methodologies
- Gold Standard (GS): 23 project types (excluding clean water and WASH), 32 methodologies (excluding water benefits)
- Climate Action Reserve (CAR): 27 project types, 27 protocols
- Total: 96 project types, 421 methodologies or protocols
CDM and VCS categorize projects by the sectors (manufacturing, construction, etc.) that typically issue those types of credits. This is referred to as “sectoral scope.” The other three standards organize carbon offset projects by the emissions reduction activity it’s focused on.
A side-by-side comparison of the carbon project types by standard is available for reference.
Impact of inconsistent project types on the voluntary carbon market
A financial market needs a standardized way to assess and compare the risk and value of different asset classes in order to grow. Because each carbon standard registry categorizes projects differently, market participants cannot easily assess and compare similar carbon credits. This leads to confusion in the market, making it harder for traders, brokers, asset managers, and companies to price and manage risk effectively. They need a consistent, transparent classification of projects to perform accurate market analyses.
Last week at CERAWeek, panelists discussed how this fragmentation represents a significant hurdle for scaling the voluntary carbon market. Tom Colebatch, Managing Director at Macquarie, emphasized the need for better standardization and a common understanding of what constitutes a high-quality carbon credit. He said that would build confidence in the market, allowing for more capital flows. Rishi Das, Manager of Technology for Natural Climate Solutions at Verra, agreed and noted that project standardization would also improve market efficiency and reduce the likelihood of bottlenecks in credit issuances.
How VAI developed a standardized carbon project taxonomy
To address this market need, Viridios AI created a platform (VAI) that aggregates data from all the major carbon offset registries. Now market participants can compare similar carbon projects side-by-side to assess risk and value. To standardize the data, VAI provides a carbon project taxonomy that focuses on the emission reduction action, subdivided into project category and type. In the future, carbon projects will be further categorized by the granular project activities used to accomplish the emissions reduction.
We see more value in recognizing a project, not necessarily for the industry where it’s being generated, but for how the project is reducing or removing emissions from the atmosphere. This kind of transparency helps buyers understand the real impacts of carbon projects.
To determine project classifications, the VAI team assessed the methodologies used by the largest carbon offset registries in the market to understand what each allows. For example, one of the methodologies for the VCS AFOLU sectoral scope, or project category, is VM0007. The methodology text states that it applies to reducing emissions from deforestation and forest degradation (REDD) in forests, wetlands, and peatlands. It includes emission reductions and removals from avoiding planned and unplanned deforestation and forest degradation, as well as reforestation and restoration of peatlands and wetlands. Since this methodology is primarily for REDD and restoration activities, it has been included in the VAI taxonomy under the following: the Agriculture, Forestry and Other Land Use (AFOLU) category and Ecosystem Conservation (afolu.01) project type. Another example is the ACM001 “Flaring or use of landfill gas” methodology for the CDM sectoral scope “Energy industries (renewable/non-renewable).” Projects using this methodology fall under the Gases Abatement (GA) category and Municipal/Industrial Organic Waste Methane (ga.01) project type in the VAI taxonomy. That’s because they capture the methane originating from the anaerobic decomposition of waste. If they also use the gas captured to generate electricity or heat, they are displacing more carbon-intensive energy downstream and would fall under the following: the Renewable Energy (RE) category and Biofuels (re.02) project type.
The VAI carbon project taxonomy
Today, there are four main categories of projects in VAI:
- Agriculture, Forestry and Other Land Use (AFOLU): Nature-based projects driven by the use of land and ecosystems.
- Energy Efficiency and Fuel Switch (EEFS): Projects that reduce energy consumption or reduce the carbon intensity of the energy supply.
- Gases Abatement (GA): Projects that avoid and/or destroy GHG emissions from large-scale sources (manufacturing, agriculture, landfills, wastewater treatment, utilities, etc.) that are not related to the combustion of fossil fuels.
- Renewable Energy (RE): Projects that displace fossil fuels through the use of renewable energy sources.
The detailed VAI carbon project taxonomy is shown in the following charts and tables. Project data shown is as of Mar 16, 2023, for 14,677 total carbon offset projects.
RE projects constitute the largest share of carbon credits, followed by EEFS, and GA. The AFOLU category, while most important for preservation of earth’s ecosystems, generally requires an investment from businesses that does not immediately impact the bottom line. It does, however, tend to yield significant positive benefits for brand reputation.
Agriculture, Forestry and Other Land Use (AFOLU)
Category | Type | Activity (sample) |
Agriculture, Forestry and Other Land Use (AFOLU) (1,328 projects in VAI: 9% of total) | (afolu.01) Ecosystem Conservation | ● Terrestrial ecosystem conservation and management ● Avoided planned/unplanned deforestation ● REDD/REDD+ ● Improved forest management (IFM) ● Logged-to-protected forest |
(afolu.02) Ecosystem Creation and/or Restoration | ● Grassland restoration ● Forest regeneration ● Wetland restoration ● Afforestation, reforestation and revegetation | |
(afolu.03) Blue Carbon | ● Avoided degradation of coastal ecosystems ● Restoration of mangroves, seagrass meadows, tidal marshes, etc. | |
(afolu.04) Regenerative Agriculture | ● Pasture management ● Grazing management ● Soil remediation ● Low- or no-tillage ● Cover cropping ● Crop rotation ● Stubble retention ● Irrigation systems |
The first two types (afolu.01 and afolu.02) have the most projects. Conservation of ecosystems such as forests and restoration of such systems (reforestation, afforestation) have been traditionally the main activities in nature-based climate mitigation efforts. The latter two (afolu.03 and afolu.04) are more recent additions to the carbon markets, so they are just beginning to grow. There are already a number of blue carbon projects under development around the world, and regenerative agriculture initiatives have also been growing with new methodologies such as VCS VM0042 gaining adoption by project developers.
Energy Efficiency and Fuel Switch (EEFS)
Category | Type | Activity (sample) |
Energy Efficiency and Fuel Switch (EEFS) (3,450 projects in VAI: 24% of total) | (eefs.01) Energy Demand, Domestic/Commercial | ● Efficient appliances, equipment and machinery ● Low-flow hot water saving devices ● Space heating ● Weatherization |
(eefs.02) Energy Demand, Industrial/Agricultural | ● Technology upgrades ● Energy management ● Feedstock switch ● Material recycling | |
(eefs.03) Energy Supply | ● Fuel switch to low or no-carbon ● Recovery and utilization of waste energy or gas ● Co-generation or tri-generation ● Fugitive emissions from the distribution network ● Low-bleed controllers ● Waste-to-energy | |
(eefs.04) Household Devices | ● Cookstoves and cooking fuel ● Lighting ● Water purification devices ● Community boreholes ● Household organic waste digesters | |
(eefs.05) Transportation | ● Vehicle fuel efficiency ● Fuel switch (electric, hybrid, biodiesel, etc.) ● Commercial transport energy efficiency ● Modal shift |
High-quality carbon credits usually include some co-benefits for local communities. That’s likely why eefs.04 (household devices) reflects the most projects for this category. For example, a REDD+ project (afolu.01) often includes an activity involving efficient cookstoves so that local communities won’t cut down trees for fuel. Likewise, an agricultural gas abatement project (ga.05) will frequently include household organic waste digesters in addition to livestock manure digesters.
Gases Abatement (GA)
| Category | Type | Activity (sample) |
Gases Abatement (GA) (2,497 projects in VAI: 17% of total) | (ga.01) Municipal/Industrial Organic Waste Methane | ● Landfill gas ● Composting ● Wastewater treatment |
| (ga.02) Extraction Methane | ● Destruction of emissions from oil/gas wells and coal mines | |
| (ga.03) Industrial Gases | ● Abatement of N2O, PFCs, SF6, NF3, HFCs and ozone-depleting substances ● Feedstock switch ● Collection and destruction of refrigerants ● Advanced refrigeration systems | |
| (ga.04) Residual and Fugitive Gases | ● Carbon capture and utilization ● CO2 and CH4 abatement from industrial processes ● Substitution of CO2 as feedstock ● Leak reduction | |
| (ga.05) Agricultural Gases | ● Water management in rice production ● Livestock manure digesters ● Cattle feed switch ● Nitrogen fertilizer management |
Note that ga.01 is a common type for municipal carbon projects and ga.03 covers multiple heavy industries. Also ga.05 has a large number of projects due to the various gases abatement activities involved in agriculture.
Renewable Energy (RE)
| Category | Type | Activity (sample) |
Renewable Energy (RE) (7,402 projects in VAI: 50% of total) | (re.01) Biomass | ● Agriculture residue ● Organic solid waste ● Managed crop or forest plantations ● Organic/renewable MSW incineration |
| (re.02) Biofuels | ● Landfill gas ● Wastewater biogas ● Waste oil/fat ● Biodiesel/ethanol | |
| (re.03) Hydro | ● Dam/reservoir ● Run-of-river | |
| (re.04) Solar | ● Solar photovoltaic ● Solar thermal | |
| (re.05) Wind | ● Onshore ● Offshore | |
| (re.06) Geothermal | ● Dry steam ● Flash/binary cycle |
Hydro and wind are the largest share of projects in this category because they are the most developed and widely used renewable energy source in the world. However, between 2020 and 2021, wind and solar were the fastest growing renewable energy, so this may change in the future.
How can VAI project data help you meet your goals?
Understanding the differences between the different types of carbon projects is essential to making an informed decision. With nearly 15,000 carbon projects, VAI provides the most comprehensive source of normalized data on carbon projects across different regions, sectors, standards, and co-benefits (SDGs) included. Real-time insights on end-of-day pricing for the most traded carbon credits gives you transparency into what’s happening in the market today. Whether you are an asset manager, broker, company, or project developer, VAI can help you meet your goals. With VAI, you can:
- Discover and compare carbon projects based on factors such as region, sector, standard, vintage, and co-benefits (SDGs) included.
- Conduct in-depth analyses on carbon project impacts and pricing.
- Create a watchlist of projects for easy reference.
- Estimate fair prices for your carbon projects based on specific project attributes.
- Conduct scenario analyses to assess your carbon portfolio.
- Access market-based end of day prices for the most actively traded carbon projects to benchmark your project’s performance.
- Download historical price data to see market trends.
Try the VAI platform today to find the right carbon offset projects and fair market prices to fit your needs.
You may also be interested in reading about how VAI won Best Market Innovation in the 2022 Environmental Finance Voluntary Carbon Market Rankings.
About the authors:
Marcelo Labre is CEO and Co-Founder of Viridios AI. He has over 18 years of financial markets experience across multiple asset classes. As a pioneer in the carbon markets, he has worked on some of the most innovative structured carbon transactions in the markets to date. Marcelo is also a subject matter expert and thought leader on applications of Artificial Intelligence (AI) in finance. An engineer by training, he has a Master’s in Finance from London Business School and a PhD in Mathematical Finance from Imperial College London.
María Elisa Vollmer is Head of Project Data at Viridios AI. She has five years of experience in sustainability consulting for the public, private, and non-profit sectors. Her diverse background blends international development, environmental policy, and economics. She has a Master’s in Applied Economics from George Washington University and an undergraduate degree in Environmental Policy and Planning from Virginia Tech.
Julie Yamamoto is a Content Manager at Viridios AI. She has over 20 years of global experience spanning multiple sectors. Her work has been featured in several enterprise and nonprofit digital channels, as well as Forbes, TechTarget, GreenBiz, and American Forests. In previous roles, she led content marketing for the OneTrust ESG & Sustainability Cloud and the IBM Center for Applied Insights. She is also a trained Climate Reality leader and has led sustainability initiatives such as IBM AI for Social Good (Environment), Watson Green Advisor, Forests for the Earth, and conservation data science. She has a Master’s in Marketing Management from Nanzan University and a Bachelor’s in Business Administration from Oglethorpe University.