used by governments and businesses to meet emissions reduction goals or to voluntarily offset their carbon footprint
how do verified carbon credits work?
carbon credits is a key component in efforts to mitigate climate change and reduce greenhouse gas emissions. historicially, there has been some negativity surrounding the sector, which was to do with transparency, trust and reporting. all that is set to change.
how? done through independent verification against a specific set of rules and methodologies, set under a voluntary carbon standard. with new insurance companies entering the arena, it seems the "trust" issue is going to be managed diligently.
carbon credits, is set to become very interesting and a key driver to inject real capital to the carbon removal sector. as of q2.2024, we find the concept pretty challenging, as the uptake and interest globally has been vast. we see this calming down during the year, with more professional standards being adhered to.
to create carbon credits, a project or activity must be implemented that reduces or removes greenhouse gas emissions.
these projects can include reforestation, renewable energy generation, energy efficiency improvements, and various other initiatives aimed at reducing emissions.
emission reduction projects
independent third-party organizations, known as validators and verifiers, assess the project's viability, including CO₂ emissions reductions.
validation confirms that the project's design and methods are in accordance with recognized methodologies. verification ensures that the emissions reductions are accurately measured and accounted for.
measurement & verification
the project developer or owner can then sell these carbon credits in the voluntary carbon offset market to individuals, organizations, or companies interested in offsetting their own emissions.
buyers purchase these credits as a way to compensate for their own emissions and demonstrate a commitment to addressing climate change.
trading & sales
the project or activity results in verifiable reductions in greenhouse gas emissions.
this can be calculated by comparing the emissions generated by the project to a baseline scenario that represents what would have happened without the project's intervention.
offsetting & emissions
it´s important to note that the effectiveness of carbon credits in addressing climate change depends on the integrity of the measurement and verification process, the quality of the projects they fund, and the transparency and accountability of the entire system. various international standards and organizations exist to ensure the legitimacy and credibility of carbon credit programs. it seems the market is finally gaining much more credibility, although this is an ever evolving space and more must be done.
there are several verification agencies, and they all have different ways of assessing and approving a project. verra, gold standard, puro earth, the integrity council and the clean development mechanism are the main players.
verification
to limit fraud and negligence and increase confidence in the carbon market, the insuring of a carbon credit gives an extra layer of comfort and peace of mind to the buyers of the credits and the financial institutions that may be funding the carbon removal projects.
in the past twelve months many insurance companies are dipping their toe into the water; why you may ask? well, estimates state, the market for carbon credits will grow from $20 billion to $50 billion by 2030.
the key for the insurance companies is making sure that each carbon credit they insure has been verified. robust, transparent validation and verification is driving the market now.
insurance
the carbon removal market has grown significantly in the past year, and that trend is set to continue. a 437% increase in purchases in the first half of 2023 compared to all of 2022 has been mooted about the sector. projects that have historically been aiming to avoid or reduce co₂ emissions account for 82% of the offsets market. buyers get a credit for preventing future emissions. the actual removal of co₂ emissions is where the market is now heading.
when the market calms down, we will be able to provide our investor clients a range of secure, transparent and in many cases, a "verified" high quality carbon removal credit. although that is not "the" critical component in our business model; the permananent removal of co₂ is.
the cdr market
