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Carbon Mitigation Credits

The compliance and voluntary carbon credit markets have quickly become a standard for the industry and government protocols to meet goals for Greenhouse Gas (GHG) Emissions reductions.

  • What is a Carbon Credit?
  • How it started
  • Carbon Offset Programs
  • Carbon Sequestration & Methodolgy
  • Service Area
  • Market Projections

What is a Carbon Credit?

A Carbon Credit is an emission reduction credit generated from another organization’s project that results in less carbon dioxide or other greenhouse gases (GHGs) in the atmosphere than would otherwise occur.

Essentially, it is an instrument representing the reduction, avoidance, or sequestration of one metric tonne of carbon dioxide or greenhouse gas equivalent. The key concept is that offset credits are used to convey a net climate benefit from one entity to another.

Carbon credit markets exist under both mandatory (compliance) and voluntary programs. Compliance markets are created and regulated by mandatory national, regional, or international carbon reduction initiatives. Voluntary markets function independently from compliance markets. Voluntary markets enable companies and individuals to purchase carbon offsets by choice with no intended use for compliance purposes.

How it started:

The foundation for carbon credits began in the 1980s, as policymakers began to evaluate and analyze how to mitigate climate change. Although the first demonstrations of carbon credit projects involved voluntary arrangements, the idea evolved into a tool for controlling costs within broader “market mechanisms” for addressing GHG emissions, including emissions trading systems. The first and largest carbon offset program was the CDM, established under the Kyoto Protocol as a mechanism to allow developed countries to meet emission reduction obligations economically, through mitigation investment in developing countries.

In response, several other regulatory emissions trading systems have also incorporated carbon credits as a compliance tool. The demand for compliance offset credits is driven by regulatory obligations. In consequence, the compliance markets often create a higher cost per credit than voluntary market credits.

The framework for voluntary carbon offset programs first arrived in late 2005. This market was created in response to the CDM becoming more established and the corporate social responsibility community’s recognition of market demand. This demand extends beyond the regulated companies and Kyoto Protocol countries. There is now a variety of carbon credit programs primarily (or exclusively) serving the voluntary market. These programs are comprised primarily of corporations wishing to make GHG emission reduction claims.

Carbon Credit Programs

Carbon Programs are established and implemented by both international regulatory bodies, independent governments, and non-governmental organizations (NGO’s). These programs are created for compliance and voluntary programs. They ensure the quality of offset credits, along with limitations, can be standardized and consistent across the industry.

Examples of some major Compliance carbon offset programs are

  • the California Compliance Offset Program through the California Air Resource Board (CARB),
  • Clean Development Mechanism (CDM),
  • Regional Greenhouse Gas Initiative (RGGI), and
  • the Alberta Emission Offset Program(AEOP).

For the Voluntary Carbon Offset Programs

  • American Carbon Registry,
  • Climate Action Reserve,
  • The Gold Standard, and

The Verified Carbon Standard all operate in various systems including the Verified Emission Reduction (VER), Verified Carbon Unit (VCU), and the Climate Reserve Tonne (CRT).

Carbon Sequestration & Methodology

Carbon Sequestration is the process of capturing carbon dioxide from the atmosphere and transforming it into biomass, it is then accumulated into net carbon sinks within the soils. Carbon sinks can be stored for decades. They have been verified in many different ecosystems including forests, wetlands, agricultural lands, and native grazing habitats.

Site selection and program protocol are two key factors in determining the size and scope of a carbon offset project. Geographic location, acreage, management practices, and habitat type are determining factors to a project’s overall viability.

TerraWest applies industry and regulatory-based criteria to determine optimal mitigation sites, whether for wetland, upland, or carbon markets. Our team of scientists and biologists will create a detailed inventory and habitat quantification tool (HQT), developed and approved by the program administrator (CARB, RGGI, etc.). They will then begin the development of the Carbon Credit Bank. Once the list of required exhibits has been completed (including long-term management, stewardship actions, verification reports, and registrations) the carbon credits are certified and deposited into the Bank Sponsor’s (Landowner’s) account. The account is then monitored by the registry system which is administered by the offset program. The process of verification through specific program protocol may vary, but the quantification tools are designed and implemented through a consistent, predictable, framework developed across each platform.

Service Area

Unlike wetland mitigation or Conservation Banks for protected species, Carbon Credits can be sold across state lines and oftentimes internationally because GHG’s mix globally in the atmosphere, the carbon reduction location is not important. From a climate change perspective, the effects are the same if an organization ceases an emission-causing activity or enables an equivalent emission-reducing activity locally, or somewhere else in the world.

Carbon Projections

The Institute of International Finance (“IIF”) and the Taskforce on Scaling Voluntary Carbon Markets (“TSVCM”) estimate that carbon markets will grow at least 15-fold by 2030. This will cut net man-made greenhouse-gas emissions in half by the end of the decade. The Intergovernmental Panel on Climate Change (“IPCC”) has stated that doing so is necessary to maintain the 1.5°C Paris Climate Agreement goal.

The current voluntary carbon credits market, including pre-compliance buyers, is already worth more than $300 million per year. The expected growth between 2021 and 2030 is creating an emerging market greater than proposed portfolio alternatives. TSVCM research has identified roughly 12 billion metric tons of carbon dioxide credits available to bring to market annually over the next 10 years. Nearly 85% of those credits would be generated from Natural Climate Solutions (“NCS”) – primarily conservation of endangered forests and peatlands, which has accounted for 3.6 billion tons per year.