Insights / Carbon credits: what are they and how to choose?

Carbon credits: what are they and how do you choose between them?

While reducing your emissions wherever possible (see our article about the Oxford Principles), you’ll also be trying to address your hard-to-abate emissions. This is often more difficult to achieve – due to economical, technological and other limitations – but one way is to purchase carbon credits.

A credit certifies the permanent removal of one metric tonne of carbon dioxide equivalent emissions (CO2e) from the atmosphere, or a reduction in CO2e by the same amount. You can buy credits on the Voluntary Carbon Market (VCM) and it’s advisable to follow VCM Integrity Initiative (VCMI) guidance on their usage.

Carbon credits: what are they and how do you choose between them? - hero Image

What types of carbon credit are available?

A range of projects are associated with the carbon credits available on today’s VCM, as you can see from this diagram:

Carbon credits: what are they and how do you choose between them? - Image 1

While there’s no one ‘silver bullet’ and the world needs all these available solutions, it’s the projects associated with carbon reduction that are far more prevalent today. Even so, guidance including the Oxford Principles is fuelling a growing consensus to transition from reduction credits to carbon removal credits over time. And there are several reasons for an organisation supporting such a move.

For a start, having a broad portfolio of projects (and the associated credits) as early as possible on your decarbonisation journey could help save money. Many commentators predict a rise in the cost of carbon removal credits (and they’re already more expensive than other credits). So, buying the higher value credits now will probably reduce spending further down the line when only carbon removal credits will counterbalance your remaining hard to abate emissions.

A broader spread of credits is also likely to help an organisation achieve its sustainability goals more quickly than simply continuing to invest in reduction credits. It could also help with compliance; there’s speculation that governments, industry associations and other bodies may start setting and enforcing emissions targets. The higher integrity credits associated with mid-term and, especially, durable removal methods may well hold more sway than reduction credits associated with less verifiable methods with no storage.

In addition, a diverse portfolio of credits is likely to deliver more environmental and social benefits compared to a narrow focus on reductions only. That’s because the biological and geological carbon storage projects are associated with positive outcomes for people, nature and climate.

For more information about the links between carbon credits and sustainability, read this article.

The credits in more detail

Reduction credits – renewable energy

If you use electricity and other energy from non-renewable sources (e.g. coal, gas), you can switch to a new supply contract that’s certified against renewable power generation. Doing this would reduce the emissions related to the power you use.

You could achieve a similar effect by generating and using your own renewable electricity, if you invested in your own wind or solar farm for example. This would probably save you money over the long-term too (as you can use your own power rather than what the Grid supplies), while also having a positive effect on your emissions.

Another alternative is to invest in renewable energy projects globally – potentially encouraging developers to create more – and/or purchase the credits associated with these projects. Of course, buying credits delivers a similar signal to the market as project investment, so your purchase has a positive ripple effect.

Reduction credits – clean cookstoves

Around the world, millions of people still rely upon open fires or inefficient stoves to cook their food. And they use kerosene, charcoal, firewood and other ‘dirty fuels’ that are harmful to human health as well as the environment.

The Clean Cooking Alliance strives to make clean cooking accessible to all. It believes that approximately 2% of global CO2 emissions – about 1 gigaton – comes from burning these fuels every year. However, over the past decade, the work of the CCA and other organisations has led to the increasing availability (and reduced cost) of cleaner fuels and more efficient stoves.

The CAA estimates that modern stoves can reduce fuel use by up to 90%, thereby lowering emissions and reducing the health risk to users. This shift towards better cooking equipment and cleaner fuel has coincided with more investment from the carbon credits industry, which has further increased the availability of the improved fuel and machinery. Naturally, this has also led to there being a market for carbon credits associated with clean cookstove projects, which in turn encourages cookstove manufacture, installation and usage.

However, clean cookstove projects do attract criticism because of the quality and efficacy of the associated carbon credits. This reflects the various approaches that each project can adopt for establishing the baseline data (i.e. the level of CO2 being emitted before the modern stoves come into use). For example, it’s possible to use field-based (rather than lab-based) tests to set the baseline and to apply conservative assumptions about baseline fuels. For many, such actions create doubts about the efficacy of the project.

To delve deeper into this subject, we suggest looking at the CAA website. Another good source of information is the market intelligence and carbon procurement platform called Abatable.

Removal credits – reforestation and afforestation

Reforestation is the process of planting trees in areas where, typically, there’s been no tree cover in the previous five years – often because of deforestation.

When forests shrink, deteriorate or disappear, the process destroys wildlife habitats and there are fewer trees to absorb CO2. Forest shrinkage, deterioration and loss also contribute to the likelihood of flooding in certain areas. When reforestation occurs, the new trees absorb (and store) CO2 as they grow.

Afforestation is about the creation of new forests – planting new trees or sowing seeds in areas that didn’t have woodland before. This can help avoid turning fertile land into a desert (following drought or intensive agriculture) and, as in reforestation, the new trees absorb and store CO2 as they grow.

In terms of the risk of reversal, both reforestation and afforestation have the potential to suffer from disease, fire or other issues preventing new tree growth. If any of these occurs, less CO2 (potentially, even zero CO2) is being absorbed and stored for an extended period.

Removal credits – mangrove and ecosystem restoration

Mangroves are a kind of coastal vegetation or waterside ecosystem (along with salt marshes and sea grasses). They suck in and store carbon – sometimes known as blue carbon –at a greater rate than land-based plants.

Although human encroachment and coastline development have depleted these hyper-absorbent ecosystems, there are now efforts – funded by Apple, for example – to regenerate and extend them. The idea is to turn the expanding mangroves into carbon sinks that can remove more emissions from the atmosphere than conventional forests.

Human intervention can also have a negative influence on these environments. So if regeneration fails to happen and depletion continues, these ecosystems will be storing less carbon overall. In such a scenario, it wouldn’t be possible to issue carbon credits that had any credence or value.

Removal credits – soil carbon enhancement

Although soil contains a lot of carbon due to vegetation dying and rotting, once it’s saturated with carbon, it can’t hold any more. In addition, human activity that disrupts the soil in some way – such as ploughing, fertilising and gardening – can release the carbon. Therefore, any projects associated with maintaining – or increasing – soil carbon levels require the project owners (e.g. farmers) to refrain from those disruptive activities for an agreed period.

Of course, it’s possible to implement an appropriate style of farming. This could mean not ploughing the fields to harvest but cutting the crops instead and leaving the stalks left to rot into the soil, enhancing its carbon. Or it could involve crop rotation, where the farmer leaves selected areas as fallow land following a harvest and uses new areas to grow crops normally.

However, all these non-disruptive farming styles are likely to last for a relatively short period. At some point, the farmers will want or need to plough and re-seed their land to maximise both its use and their profits. This means that the credits associated with soil carbon are far less durable than other types. What’s more, it’s also hard to quantify soil carbon levels at any point in time, raising concerns about the accuracy of the baseline (and post-enhancement) data.

Bioenergy with carbon capture and storage (BECCS)

This is the process of capturing and permanently storing the CO2 that’s generated during the production of electricity from sustainable biomass. BECCS is the most scalable and affordable carbon removal technology available today – read BECCS at Drax.

What’s bioenergy with carbon capture and storage (BECCS)? - Image 2

Research from the UN’s Intergovernmental Panel on Climate Change (IPCC) states that the world needs Carbon Dioxide Removals (CDRs), including BECCS. This is because CDRs will help to mitigate residual emissions and keep the planet on a pathway to limit global warming to 1.5oC. The IPCC’s assessment is that, worldwide, there’s a potential need for up to 9.5 billion tonnes of CDRs from BECCS per year by 2050.

BECCS prevents the re-release of CO2 into the atmosphere and instead transports the captured carbon to permanent storage in geological formations underground. This means the associated carbon credits are of high integrity and value.

Direct air carbon capture (DAC)

There are two main forms of DAC technology, and both work through contact between the air and chemicals known as sorbents.

The first process uses absorption, whereby the CO2 dissolves into the sorbent material. The second uses adsorption, so the CO2 molecules adhere to the surface of the sorbent material. In both cases, the treated sorbents ensure the release of the CO2 and allow for its sequestration in geological storage.

The main challenges for DAC are its cost and the enormous amounts of energy needed to capture the air, which creates an additional demand for electricity.


We all know how plants absorb CO2 through photosynthesis. However, it’s less well-known that rocks also absorb CO2 as they weather and erode.

Rain absorbs CO2 from the atmosphere as it falls, and some of it lands on the rocks and starts reacting with them. The CO2 very slowly breaks down the rocks, forming a bicarbonate that’s eventually washed into the ocean where the carbon’s locked on the seabed.

The problem is that this process takes a long time. One idea is to speed it up by pulverising rocks and spreading the resulting powder over a larger area to absorb more CO2 from the rain and air.

Natural rock weathering currently absorbs around 0.3% of global fossil fuel emissions annually. However, this approach requires extensive land use and hasn’t yet been trialled at scale.

What’s next?

We hope you now have a better understanding of carbon credits and how to distinguish between them. If you’d like to know what part they can play in your sustainability strategy, explore our article: What role do carbon credits have to play in sustainability strategies?

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