Set Carbon Credit Objectives and Alignment with Climate Strategy
Environmental Defense Fund
Carbon credits have the potential to achieve multiple outcomes—they can stimulate innovation, mobilize investment in critical areas of climate action, and give your company a tool to make immediate progress on your emissions targets. But there should be a clear rationale for their use that aligns with your company’s climate strategy.
Carbon credits are a way that your company can contribute to addressing the climate crisis beyond reducing the emissions that are under your direct control. Voluntary carbon markets are important in unlocking private finance for critical issues like tropical forest degradation.
There are a number of objectives your company may be seeking to achieve through the purchasing of credits, such as compensating in the short term for operational emissions that cannot yet be reduced directly or meeting broader sustainability goals. Your company should define your objectives before procuring carbon credits, as this will guide conversations with key internal and external stakeholders and ensure your purchases are efficient and in alignment with your company priorities.
Set Objectives and Alignment with Climate Strategy
In addition to the five critical components of quality outlined in the ‘Understand Carbon Credit Quality’ action step, your company may want to incorporate additional bespoke criteria to guide its credit procurement. For example, your company may strive to activate market transformations within industries or geographical areas of relevance to your core corporate operations. You may also wish to generate positive socio-economic impacts and “more than carbon” ecosystem benefits (e.g., biodiversity, water quality) in specific communities. Other specific objectives may relate to policy advocacy; land-use change and conservation; benefits related to Black, Indigenous, and People of Color (BIPOC) communities; Indigenous land rights—free, prior, and informed consent (FPIC); and other considerations. When choosing additional criteria for carbon credit procurement, it is important to consider potential trade-offs. For example, if market transformation is the focus of a corporate carbon program, policy advocacy may be less of a priority.
Case Study
Meta
BASCS member Meta outlines its carbon program’s selection criteria in its 2021 Sustainability Report. Meta invests in carbon removal projects that “are designed to be a reliable and additional source of carbon sequestration, are quantified using existing standards and verified by a third party, do not create adverse impacts elsewhere, and prioritize climate justice and equity.” Microsoft, another BASCS member company, details “criteria for high-quality carbon dioxide removal” in a publication co-authored by Carbon Direct.
After clarifying the carbon credit procurement criteria, companies can select what type of credits to purchase and navigate procurement. There are two types of credits: avoidance and removals.
- Avoidance credits represent emissions reductions—avoided emissions compared to a baseline scenario, like energy efficiency or renewable energy infrastructure.
- Removals credits represent emissions extracted from the atmosphere and stored, such as reforestation or direct air carbon capture.
Avoided emissions or emissions reduction credits are readily available and play a critical role today in climate mitigation, but some standards and climate target bodies do not accept avoidance. For example, SBTi does not allow for avoidance credits in a company’s pathway to science-based net zero targets. As avoidance does not address emissions already in the atmosphere, avoidance projects, as mitigation levers for greenhouse gases, can be complemented with removals to make notable climate progress. Removals credits in the form of nature-based solutions and engineered removals are still limited, but they will prove significant in managing emissions by mid-century. It is important to note that the balance between these two types of credits is not static and may shift, and rebalancing approaches should also be considered.
Purchase Carbon Credits
After selecting the desired type of credits, determine the volume, price, time frame, and associated risks. Be aware of forecasting reports, tradeoffs in procurement methods, and potential risks, such as delivery risk.1 Being familiar with carbon credit pricing trends can help ensure that companies do not overpay for carbon credits and that their available budgets fit the annual demand for credits. Carbon credit prices have continued to rise rapidly, and budgets will have to keep pace. For some sustainability teams, this can be a challenging task, and forecasting reports provide program managers with additional evidence and justification when seeking internal budget allocations and approvals.
Companies can procure credits through a spot-market purchase, forward contracting, or equity investments. While spot-market purchases allow companies to obtain and use the credits immediately, forward contracting and equity investments linked to carbon credit streams may have the potential for higher impact because companies are launching and scaling new projects, growing the total available supply of carbon credits while more closely aligning to the fundamental components of quality. These latter instruments may also allow companies to lock in a multi-year supply of credits, lessening the pressure on future procurement efforts, while providing more competitive or discounted pricing (as compared to equivalent credits purchased on the spot market). With the set of carbon credit procurement criteria in mind, weigh the options to clarify the type of credit, budget, and procurement method needed to pursue the intended outcome.