As the global trend moves toward decarbonization to combat climate change, businesses are more encouraged than ever to reduce their carbon footprint. In this context, the carbon credit mechanism was developed to establish an integrated decarbonization process, allowing companies to offset the emissions they are not yet able to eliminate.

• What is a carbon credit ?
• Carbon credit markets
• Advantages and impacts of carbon credits for businesses
• Challenges and considerations related to carbon credits

A carbon credit represents the reduction or removal of one metric ton of carbon dioxide (CO2) or the equivalent of other greenhouse gases (GHGs) from the atmosphere. It serves as a market-based tool for companies seeking to offset their emissions by investing in projects that reduce or capture GHGs.

There are two main types of carbon credits, each aligned with a specific climate action strategy:

• Emission avoidance credits: These are generated by projects that reduce or avoid GHG emissions. For example, renewable energy projects such as wind or solar farms replace fossil fuel-based energy production.
• Removal credits: Carbon removal credits refer to projects that actively remove carbon from the atmosphere through natural processes (also known as carbon sequestration) or technological means (through technologies such as Direct Air Carbon Capture and Storage, DACCS), and store it permanently or for the long term.

Carbon credits provide companies with an opportunity to actively engage in the fight against climate change, by financing projects that reduce emissions on a global scale.

The carbon credit system operates through two distinct markets. One caters to entities legally obligated to cap their greenhouse gas emissions, while the other is designed for organizations voluntarily seeking to reduce their carbon footprint.

In this market, companies (in Europe, primarily from the energy, industrial, or aviation sectors) operate under a regulatory framework where they are legally required to meet emissions caps. Companies that exceed these limits must purchase carbon credits to offset their excess emissions.

Governments or regulatory bodies set emission limits for certain industries or sectors, and companies must acquire enough carbon credits to neutralize their emissions.

The voluntary market is for all companies that want to offset their emissions without being legally required to do so. These companies purchase credits to strengthen their environmental commitment, enhance their reputation, and meet growing consumer expectations for sustainability.

Credits purchased on the voluntary market often come from projects certified by recognized standards such as the Verified Carbon Standard (VCS), Gold Standard, or Climate Action Reserve (CAR).

Integrating carbon credits into a company’s climate strategy offers several benefits:

Carbon credits allow businesses to offset emissions they cannot immediately reduce. By financing global GHG reduction projects, they actively contribute to decarbonization efforts on a global scale.

Adopting carbon credits can open doors to new markets where the demand for sustainable products and services is growing. Additionally, it can meet the increasing sustainability requirements within supply chains.

Despite their advantages, carbon credits face some criticisms and require businesses to exercise due diligence.

One of the main challenges associated with carbon credits is the risk of greenwashing. Some companies may purchase carbon credits without committing to real emission reductions, using them as a mere marketing tool. Therefore, it is essential to ensure that the credits purchased come from certified projects that genuinely impact GHG reduction.

Not all carbon offset initiatives are equal. It is crucial to choose carbon credits from projects certified by recognized organizations that ensure emission reductions are verifiable, measurable, and permanent.

For companies implementing a CSR (Corporate Social Responsibility) policy, it is also wise to opt for carbon credits that offer co-benefits aligned with the United Nations Sustainable Development Goals.

The carbon credit mechanism is internationally recognized as a responsible approach that balances unavoidable carbon emissions. It is a powerful tool for businesses looking to reduce their carbon footprint while continuing to grow economically.

By understanding how they work and integrating them into a climate strategy, businesses can not only contribute to the fight against climate change and facilitate the transition to a low-carbon economy, but also improve their image and access new markets.

Nvalue positions itself as a key partner to help you understand and acquire certified carbon credits, ensuring that you integrate this solution into your sustainability efforts. Now is the time to turn your climate ambitions into concrete actions: for any information request or to get a quote, contact us today.

Nvalue is here to help you start and succeed in your climate journey by focusing on renewable energy. Together, let’s build a future where clean energy is at the heart of your strategy.

For any information request or to get a quote, contact us today.