Carbon Credit Strategy: A Comprehensive Guide for Corporates

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Navigating carbon credit strategies is essential for businesses aiming to meet sustainability goals and reduce environmental impacts.

 

This article will guide you through the critical aspects of carbon credit strategies that can enhance your business’s environmental and economic outcomes.

 

Dive into understanding how to leverage carbon credits for your business’s sustainable growth.

 

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Good reading!

What is a Carbon Credit?

carbon-credit

A carbon credit is a negotiable certificate that signifies the reduction or offset of one metric ton of carbon dioxide (CO2) in the atmosphere.

 

It serves as a measure to account for the amount of greenhouse gas emissions that have been either reduced or sequestered as part of a certified project, compared to a predefined standard.

 

These initiatives may involve actions like enhancing energy efficiency at home or in industry, generating renewable energy, reforesting areas, or capturing methane from landfills or livestock operations, among other examples.

 

Corporates have an inherent carbon footprint and are increasingly dedicating themselves to reducing or even neutralizing these emissions. As they pursue their goals for decarbonization and as related technologies advance, carbon credits offer a way to achieve their interim objectives.

 

Moreover, these projects offer a chance to direct investment toward the least developed countries and benefit indigenous or other marginalized communities through job creation, sharing of benefits, infrastructure development, and more.

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Types of Credits and How They Are Generated

There are various methods for reducing emissions or removing them from the atmosphere.

 

It’s important to gain an understanding of how projects credit emissions, as this provides users with a clearer understanding of their impact and the validity of their claims.

 

At Viridios AI, we categorize these methods using the following taxonomy:

Agriculture, Forestry, and Other Land Use (AFOLU)

This category encompasses nature-based solutions that involve the management of land and ecosystems.

Energy Efficiency and Fuel Switch

This segment includes projects aimed at lowering energy consumption or decreasing the carbon intensity of energy sources.

Renewable Energy

This group focuses on replacing fossil fuels with renewable energy sources.

What is a Carbon Credit Strategy?

When deciding to buy carbon credits, a corporation should develop a strategy that ensures the selected credits align with its specific needs and goals.

 

The process of crafting a carbon credit strategy mirrors the development of other strategic plans; it involves examining available options and making choices that will lead to the desired results.

 

When developing carbon credit strategies, there are key factors to consider such as the focus of your strategy, and the use of trustable tools, for example.

 

You also need to consider:

  • Budgets: If you haven’t set a budget yet, it’s important to consult your finance and procurement departments to determine the funding source.
  • Regulations: Conduct a review of the current regulatory landscape to identify any changes since you began your journey toward net zero.
  • Policies: Examine your company’s procurement policies to understand any limitations you may face.
  • Competition: Analyze the strategies of your competitors or other companies committed to net zero in your sector. This can offer insights into best practices within your industry.

You can easily analyze the market and your competitors using the VAI platform

Integrating the VAI platform into your carbon credit strategy enables you to assess broader market trends through the analysis of strategies employed by your competitors or other players in your industry.

 

The VAI platform provides comprehensive access to a variety of data, such as the entry date of a company into the market, their yearly carbon credit retirements, the use of rated projects and their specific ratings, how frequently they retire credits, and the estimated market value of the retirements at the time they occur.

 

This feature is especially valuable for assessing your competitive landscape, pinpointing market leaders, and grasping the strategic maneuvers of your competitors.

 

Gaining such insights is essential for fine-tuning your strategies and preserving a competitive advantage in the dynamic carbon market.

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Procurement Strategy

A procurement strategy for carbon credits refers to the planned approach an organization adopts to acquire carbon credits, ensuring they align with the company’s broader sustainability and financial goals.

 

This strategy guides the selection, purchase, and management of carbon credits.

 

When crafting your procurement strategy, it’s important to assess whether investments in projects that align logically with your business are more advantageous.

 

For instance, if you’re in the food manufacturing sector, consider whether biomass carbon offset projects would be more appealing to your stakeholders than nature-based solutions (NbS) like tree planting.

 

Alternatively, for a haulage company, a project focusing on switching from diesel to biofuels could provide a more relevant connection.

Per Year Strategy

A per year strategy is based on purchasing to Offset Previous/Current Calendar Years with spot credits.

 

Spot credits are carbon credits that can be purchased and used immediately to offset emissions. Use these credits to compensate for emissions from the current or previous years as you work on developing your long-term strategies.

 

It’s crucial to note that this approach is only viable with carbon projects offering ex-post carbon credits, meaning the emission reductions or carbon removals have already occurred.

Multi-Year Strategies

This approach is implemented through offtake and forward agreements, commonly referred to as pre-purchasing agreements.

 

It involves investing in long-term projects that ensure sustainable and continuous emission reductions. This not only provides buyers with price and volume security but also helps align carbon credit purchases with net zero targets and broader sustainability objectives, moving beyond mere short-term solutions.

 

Additionally, it future-proofs against potential fluctuations and uncertainties in supply and pricing, ensuring a more stable and predictable approach to managing emissions.

How to Choose the Right Portfolio for Your Carbon Credit Strategy?

carbon-credits-for-businesses

When choosing a carbon credit strategy, it’s essential to evaluate the quality of the carbon projects, their associated co-benefits, and potential risks.

Type of credits: Removal vs. Avoidance

The choice between the two types of projects for your carbon credit strategy can differ greatly based on your company’s specific sustainability goals and where you are in your journey toward net zero.

 

Here are two main considerations:

Removal Carbon Project

A removal carbon project aims to extract or sequester carbon dioxide (CO2) from the atmosphere. This involves initiatives that actively capture and store carbon, thus lowering the atmospheric CO2 levels.

 

Examples of such projects include afforestation (creating new forests), reforestation (reviving and managing existing forests), and initiatives that boost soil carbon storage. These efforts directly aid in reducing net emissions by augmenting the carbon stored in vegetation and soil.

Avoidance Carbon Project

An avoidance carbon project focuses on preventing or reducing the release of greenhouse gas (GHG) emissions that would otherwise occur. This involves adopting practices or technologies that diminish or eliminate emissions from specific sources.

 

Examples of avoidance projects are the installation of renewable energy systems (such as solar panels or wind turbines) to supplant energy generation based on fossil fuels, energy efficiency measures that cut down on energy use and related emissions, or projects that capture and neutralize methane emissions from landfills or agricultural operations.

 

These projects contribute to emissions mitigation by stopping them from being released into the atmosphere initially.

Quality

It’s crucial to select high-quality credits to reduce risk. Some of the risks tied to acquiring lower-quality credits include market and financial risks, regulatory and compliance risks, reputational damage, lack of real environmental impact and ineffectiveness in achieving net zero goals.

 

Purchasing low-quality credits can give misleading indications of progress towards net zero or other climate goals, potentially hindering genuine emissions reduction efforts within the company’s operations or supply chain.

 

  • Additionality is a crucial aspect in assessing the quality of a project. It ensures that the project would not have occurred without the financial incentives provided by the carbon market, thereby guaranteeing that the offset contributes a real impact.
  • Credibility is also vital for quality. It involves the project’s compliance with established standards and methodologies, ensuring that the emission reductions are accurate and transparent.

 

Certification bodies such as BeZero and Sylvera can assist market participants in more effectively evaluating the quality and risks associated with carbon credits.

Co-benefits

These refer to the additional social and environmental advantages provided by a project, beyond the reduction of greenhouse gas emissions. Examples include creating jobs, conserving biodiversity, reducing waste, and promoting gender equality.

Risk

When selecting suitable carbon offset projects, it’s essential to assess risks from various dimensions, such as project integrity, public perception, and issues related to credit issuance.

 

Carefully considering these elements is crucial for upholding credibility, preserving public trust, and ensuring the success of emission reduction initiatives.

Reliable Tools in the Voluntary Carbon Market

Ensuring a sustainable impact in the Voluntary Carbon Market (VCM) is crucial, and this can only be achieved through the use of reliable tools like Viridios AI.

 

VAI plays a vital role in the VCM by offering access to carbon credit pricing, valuations, and information on projects across multiple registries, including their contributions to sustainable development. This promotes transparency and provides the necessary data to make informed decisions in the transition to net zero.

 

Learn more about carbon credits and the VCM by booking a demo with our specialists!

Book a Demo

Speak with one of our carbon specialists to learn more about the voluntary carbon market and the VAI platform.

About the authors:

Mariana Marins is Content Marketing Manager at Viridios AI. Mariana has 9 years of experience in marketing across different markets and companies, both in the non-profit and private sectors. Her background includes marketing and GTM strategies, CX, inbound marketing, SEO, and content production.She holds a Bachelor’s degree in Communications/Marketing, a MBA in Business Management and Design Thinking, and an Innovation Leadership Program Certificate from The Hebrew University of Jerusalem.

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