Understanding Carbon Credits and their role in Climate Action

In response to the climate emergency, achieving the targets set by the Paris Agreement requires two complementary approaches: reducing greenhouse gas (GHG) emissions, and sequestering carbon through "carbon sinks" such as; forests, soils, and oceans.

For every organization, the first crucial step in effectively reducing emissions is by conducting a comprehensive carbon footprint assessment (covering scopes 1, 2, and 3). This allows for precise measurement of their greenhouse gas emissions to better target reductions.

Organizations can also play a key role in combating climate change by financing environmental projects that avoid or sequester carbon (carbon sinks). These initiatives help lower the concentration of greenhouse gases in the atmosphere and contribute significantly to collective carbon neutrality. Funding for these projects can be achieved through the purchase of carbon credits.

Although often seen as abstract, carbon credits are a key mechanism for supporting the global reduction of GHG emissions. However, the IPCC emphasizes that they must be combined with direct actions, such as reducing the carbon footprint within value chains. This article explores their origin, how they work, and their role in a comprehensive net-zero strategy.

What is the origin of carbon credits and their objectives?

Carbon credits originated from the Kyoto Protocol, a landmark agreement signed in 1997 and enacted in 2005, marking a crucial step in the global fight against climate change. This international treaty commits 192 countries to meeting specific targets for reducing greenhouse gas (GHG) emissions, which are responsible for global warming.

One of the major innovations of the Kyoto Protocol was the introduction of the Clean Development Mechanism (CDM). This mechanism allowed industrialized countries, which were bound by strict emission reduction targets, to finance GHG reduction projects in developing countries. In return, these industrialized countries received carbon credits that could be used to meet their own emission reduction goals, thereby creating an international carbon market.

The objective of carbon credits was to establish a flexible and economically viable mechanism for reducing global emissions while promoting the transfer of clean technologies and supporting developing countries in their transition to a low-carbon economy. Instead of imposing uniform reductions, this system allowed countries and companies to find solutions tailored to their context to reduce emissions, whether by investing in clean technologies or by supporting environmental projects abroad.

Since then, carbon credits have become a central element in the fight against global warming. The Paris Agreement, adopted in 2015 during COP 21, expanded its use by involving all nations in a collective effort to reduce emissions. Today, carbon credits continue to play a crucial role in achieving global climate goals.

What is a carbon credit?

Technical Definition of a Carbon Credit

A carbon credit is a unit of measurement that represents one metric ton of CO₂ (tCO₂e) or the equivalent of another greenhouse gas (GHG) that has either not been emitted into the atmosphere or has been permanently captured and stored. This unit accounts not only for CO₂ but also for other greenhouse gases, which are converted into an equivalent amount of CO₂ based on their Global Warming Potential (GWP). For example, one ton of methane, with a GWP of 28, is equivalent to 28 tons of CO₂, demonstrating how different gases are factored into the calculation of carbon credits.

This mechanism quantifies GHG reductions achieved by specific projects, historically located in regions where such reductions are particularly necessary or effective. Carbon credits are serialized, issued, tracked, and retired via electronic registries, ensuring their traceability and integrity.

Credits are thus generated by projects certified under recognized international standards, such as the Verified Carbon Standard (VCS) or the Gold Standard. For a project to generate carbon credits, it must demonstrate additionality, meaning the emission reductions would not have occurred without the funding provided by the carbon credits.

What are the types of carbon credits?

Carbon credits are divided into two main categories:

1. Compliance credits (or emission allowances): These are used in regulated emission systems, such as the European Union Emission Trading System (ETS). These allowances are allocated and traded among entities that are subject to emission caps set by governments. Companies or countries that exceed their limits can purchase allowances to offset their excess emissions, while those under their caps can sell their surplus. This mechanism encourages emission reductions by creating a financial incentive to meet or exceed reduction targets.
   
   
2. Voluntary carbon credits: These are traded on the Voluntary Carbon Market (VCM), where companies or individuals, without regulatory obligations, purchase credits to support the fight against climate change, in addition to their internal emission reduction efforts within their value chains. These credits are generated by certified projects that avoid or sequester GHG emissions beyond what would normally occur.

ClimateSeed focuses on this second type of carbon credit, ensuring that selected projects are certified according to recognized standards and generate socio-economic and environmental co-benefits, aligned with the United Nations Sustainable Development Goals (SDGs).

Different Types of Voluntary Carbon Credits

What types of projects generate carbon credits?

Carbon credits can be generated by two main types of projects:

1. Carbon sequestration projects: These projects focus on capturing and storing CO₂.

2. Emission avoidance projects: These initiatives aim to prevent CO₂ emissions before they occur.

The main types of projects include agriculture, forest and soil management, renewable energy, and many others. These projects help either avoid or sequester emissions, allowing companies to offset part of their carbon footprint. We invite you to explore our dedicated article to learn more about the various types of projects.

However, it is crucial to remember that carbon credits should be used as a complement to a robust decarbonization strategy, which is built on three pillars: Measure, Reduce, and Contribute.

To ensure real climate impact and avoid any accusations of greenwashing, organizations need to measure and minimize their emissions across their entire value chain and establish a solid reduction plan to pursue this goal in the long term. In parallel, they can voluntarily contribute to collective carbon neutrality (beyond their value chain) by purchasing carbon credits, effectively contributing to the fight against climate change.

What are the prices of carbon credits?

Today, the price of carbon varies significantly around the world, ranging from €3 to €300, depending on the type of project and its location. This price reflects not only the project's capacity to reduce CO₂ emissions but also a series of additional ecosystem services, such as biodiversity protection, social benefits, and contributions to the United Nations Sustainable Development Goals.

The value of carbon credits is influenced by both the internal characteristics of the projects and the external environment in which they operate (see diagram below). This variability can be explained by numerous factors, and given their intangible nature in a dynamic market, prices are often seen as reflecting an estimated value that may change over time.

Key Standards for Carbon Credit Project Certification

Carbon credits must be certified according to strict standards to ensure their reliability and actual impact. Among the most internationally recognized standards are the Gold Standard, VCS (Verified Carbon Standard), Plan Vivo, Climate Action Reserve, ACR (American Carbon Registry), and in France, the Label Bas Carbone. These certifications ensure that the credits issued represent real, measurable, and additional emission reductions.

In a carbon credit market where credibility is crucial, these certifications play a key role in guaranteeing that each credit purchased corresponds to a concrete and verifiable environmental action.

Certification standards define the criteria that projects must meet to be eligible for issuing carbon credits. These include requirements on how to measure and verify emission reductions, as well as, checks to ensure that the projects are additional and do not cause environmental or social harm. By adhering to these standards, projects gain transparency and trust among investors and credit buyers.

Check out our dedicated article for more details on the main standards (to be created).

ClimateSeed: Your Partner for Purchasing High-Quality Carbon Credits

At ClimateSeed, we go beyond standard requirements to ensure superior integrity and quality. We are committed to sourcing top-tier projects through a thorough risk analysis and a rigorous three-level verification process. All selected projects offer significant co-benefits, particularly by aligning with the United Nations Sustainable Development Goals (SDGs).

Additionally, we provide customized project portfolios, allowing the acquisition of high-quality carbon credits through one-time purchases, multi-year agreements, or financing of early-stage projects. We offer tailored support to help businesses build their impact portfolio and develop an effective strategy in the Voluntary Carbon Market (VCM).

To enhance transparency, our ClimateSeed contribution platform provides access to a detailed project portfolio and offers simplified carbon credit management, including tracking retirements, issuing certificates, and providing guidance to maximize impact and avoid greenwashing. An intuitive dashboard gives a clear view of transaction history with secure transactions supported by a registered payment service provider. Finally, consolidating documents related to carbon credit purchases in one place streamlines the management of operations.

We adopt a transparent business model with a fixed fee structure of 15%, ensuring clear and fair pricing throughout the entire process.

How to integrate carbon credits into a CSR strategy?

Integrating carbon credits into a Corporate Social Responsibility (CSR) strategy must be part of a broader effort to reduce internal emissions. For credibility, a carbon contribution strategy should be paired with wider initiatives such as energy optimization, process transformation, and actual reduction of the carbon footprint across the value chain. By selecting certified projects and partnering with organizations like ClimateSeed, companies can enhance the credibility and impact of their climate initiatives while making a meaningful contribution to collective carbon neutrality.

Conclusion

Carbon credits are a valuable tool in the fight against climate change, but they cannot replace concrete actions to reduce emissions. By integrating them coherently and strategically within an ambitious CSR policy, companies can actively participate in the transition to a low-carbon economy while meeting the growing expectations of stakeholders regarding social and environmental responsibility. With partners like ClimateSeed, it is possible to combine climate effectiveness with contributions to sustainable development goals, supporting high-impact projects while ensuring exemplary transparency and rigor in the use of carbon credits.

Sources : 

- UNFCCC, "What is the Kyoto Protocol?" 
- Gold Standard, "How the Gold Standard Works," 
- World Bank, "State and Trends of Carbon Pricing 2020"
- Net-Zero Initiative
- Global Climate Initiatives
- UNFCCC, Accords de Paris, 2015 
- UNFCCC, Mécanisme de Développement Propre