Skip links

What Are Carbon Credits?

Share on

Carbon credits, also known as carbon offsets, enable companies to compensate for their current carbon footprint, after first having reduced their emissions through changes to processes and investment in renewable and sustainable energy. The greenhouse gas (GHG) emissions produced through operations and product production are then offset by the purchase of carbon credits, equivalent to the total emission volume in metric tonnes. 

The purchase of carbon credits is an internationally recognised system, providing businesses with a comprehensive method to manage and offset their emissions. An individual carbon credit represents either one tonne of CO2e being permanently removed from the atmosphere, or the avoidance of one being emitted. 

What’s the difference between “Carbon Credit” and “Carbon Offset”?

Often, the terms ‘carbon credit’ and ‘carbon offset’ are used interchangeably, however, there is a slight difference between the two:

  • A carbon offset represents a tonne of carbon dioxide equivalent generated by a project which removes or avoids greenhouse gas emissions from the atmosphere. This offset can be purchased by individuals or businesses and retired to rebalance their emissions related activities.
  • A carbon credit refers to the tradeable financial unit representing the original emissions offset. The certificate can be traded and transferred without being retired against a carbon footprint.

To ensure that you choose the right carbon credit for your business to purchase, it is essential to consider a number of factors, including:

  • Quality – You must ensure that the carbon credits you purchase are of high quality. Which standard do they comply with, Do they follow an approved methodology and have they been certified by an independent third party auditing company?
  • Alignment with your sustainable business strategy – Do the offset projects generating these carbon credits align with the goals and priorities set within your sustainable business strategy? Do they fit with your core business model and help to further the achievement of your set targets?

Types of Carbon Credit

There are two types of carbon credit schemes that you can invest in. what are carbon credits

Carbon Avoidance Credits

Carbon avoidance credits are generated by projects that avoid the emission of greenhouse gases – actions and activities that prevent the emission of CO2e (carbon dioxide equivalent) into the atmosphere. These schemes focus on initiatives that prevent an emission that would have occurred in the absence of the project’s existence. 

Carbon avoidance projects include:
  • Forest conservation.
  • Recovering and using biogas.
  • Replacing inefficient cookstoves or establishing sustainable and less pollution-intensive methods of cooking.
  • Waste management.
  • Recycling.
  • Investments in renewable and sustainable energy efficiency.

Carbon Removal Credits

Carbon removal credits are generated by projects that absorb the carbon present in the atmosphere, helping to reduce and remove the greenhouse gas potential.

Carbon removals projects include:

  • Nature-based solutions such as reforestation and soil carbon sequestration.
  • Technological-based solutions, such as direct air carbon capture and storage.

Additionality and Permanence

The term ‘Additionality’ refers to the degree of which something occurs as a direct result of an intervention that would have not occurred previously if the intervention had not existed.

In order to generate effective carbon credits, a project must demonstrate additionality, achieving a different outcome to what would have occurred without external input. If a project could have been carried out as originally planned without generating a considerable impact by the income invested from the sale of carbon credits, no credits can be generated.

If carbon credits are to be generated and sold, the investment made by the buyer must be essential in enabling the project to proceed. If not, the investment made was not crucial to the happening of the project or the subsequent reduction of carbon beyond what would have occurred in the first place. The carbon removal or carbon avoidance project must also produce permanent results.

A Carbon Net Zero Target

If your business is aiming to achieve net zero, removal schemes are the carbon credit project that should be invested in. This is because these schemes are centred around the active removal of greenhouse gases from the atmosphere, rather than compensating for their production. For a net zero claim, unavoidable atmospheric greenhouse gas emissions must be matched by equal atmospheric greenhouse gas removals. 

Making The Correct Environmental Statement

When communicating your efforts in reducing the emissions produced by your business to stakeholders, potential investors and the media, it is crucial that you have an understanding of the terminology used. This ensures that you are able to correctly and appropriately state what you have achieved so far. We understand that terminology used around emissions can often be confusing, so we’ve prepared the following statements to help. 

going carbon neutralWhat is Carbon Neutral?

Achieving carbon neutrality refers to a business rebalancing their emissions by funding projects which prevent or remove an equal volume of emissions from entering the atmosphere. Carbon neutrality can be achieved by funding any verified carbon offset project; avoidance or removal.

What is Carbon Positive?

Carbon positive refers to a business offsetting more than their carbon footprint, typically, double or triple their reported emissions. In this way, the organisation goes past carbon neutrality and has a positive environmental impact by investing in projects which prevent or remove CO2e from the atmosphere additionally to their carbon reporting needs. Carbon positive is the next step from carbon neutral and can be achieved using either avoidance or removal credits.

What is Carbon Net Zero?

Net zero refers to achieving a balance between the unavoidable carbon your business emits into the atmosphere from processes, production, your supply chain and transport, and the carbon you actively remove from it. Net zero claims must prove a clear strategy of reduction has taken place to tackle all emissions categories across scope 1, 2 and 3 before offsetting to reach net zero emissions. Net zero can only be achieved using carbon removal credits with verified permanence.

What is Carbon Negative?

For a business to achieve carbon negative status, it actively removes or captures more CO2e from the atmosphere than it emits. As a result, the company then generates a negative balance of carbon emissions and has a positive impact on the environment. Carbon negative is the step on from net zero and is often used to offset historical emissions.

The terms ‘carbon neutral’ and ‘net zero’ used to be used interchangeably. However, the mechanisms to achieving both statements and their subsequent approach in combating climate change are different:

  • Net Zero refers to achieving a balance by reducing your emissions through changes to internal processes, a reduction in reliance on transport, addressing scope 3 emissions produced by your supply chain and purchasing carbon removal credits to offset residual’ emissions. Net zero is usually a long term target date
  • Carbon neutral refers to offsetting your emissions by purchasing carbon credits. This can be achieved in the short term and acts as annual benchmark of environmental performance.

How Plannet Zero Can Help You

At Plannet Zero, we work with a number of independent project developers that supply us with a range of high-quality, certified and validated carbon offset projects. Our projects not only benefit the environment, but also help to improve and support communities around the world, when they need it most. If you’re wanting to rebalance the emissions that your business produces, you can purchase carbon credits through our Offset Marketplace. 

Alternatively, if you’re looking for a more permanent, long-term strategy to help achieve your emission reduction goals, you may be interested in our One Two Zero programme. 

OneTwo Zero can help to measure and reduce your business’s operational footprint by identifying your Scope one, Scope two and Scope three emissions. 

Our programme is also comprised of:

  1. Empowering an in-house sustainability champion – Our team will provide you with guidance, templated documents and support with education around sustainability. The aim of this is to empower a culture of sustainability throughout your staff, processes and day-to-day operations. This is crucial to identify opportunities and encourage reductions in every way possible.  
  2. Engaging your supply chain – another key action is to introduce and establish emission reductions amongst your wider supply chain, both upstream and downstream. This is crucial in addressing your business’s scope three emissions, helping create a shared goal of environmental action; encouraging accelerated reductions and a shared financial cost.
  3. A net zero target – Once you’ve determined your carbon footprint and achieved carbon neutrality through the adoption of offsetting initiatives, the next step is net zero. The government has instructed that by 2050 all organisations must reach a target of net zero. Our team will provide you with the knowledge, guidance and support to achieve this goal through the setting of realistic and achievable targets. Every achievement will bring you one step closer, throughout your journey.
  4. Switching to renewable and sustainable energy alternatives – one of the most impactful ways to reduce your carbon footprint is to invest in renewable energy alternatives, wherever possible. There are a number of different solutions available to your business including green tariffs, Renewable Energy Certificates, Power Purchase Agreements and installing on-site renewable power.

For more information on how Plannet Zero can help you on your journey towards Net Zero,  please get in touch with a member of our friendly team to discuss your energy goals. Alternatively, you can give us a call on +44 20 3637 1055 or email us at info@redshawadvisors.com. We look forward to hearing from you. 


Share on