A carbon credit (or offset) is a market-based instrument that represents avoiding the emission or removal of one tonne of carbon dioxide (CO2e) from the atmosphere. These credits allow individuals, companies or governments to offset their own carbon footprint by investing in environmental projects anywhere in the world.

This article provides a comprehensive overview of how carbon credits work, what types exist, and the challenges facing this dynamically evolving market.

1. Types of Carbon Credits: From Reduction to Elimination

Not all carbon credits are created equal. They can be divided into three basic categories based on their impact on the climate:

• Emissions reduction credits (Reduction): They focus on reducing greenhouse gas emissions compared to previous practices. Examples include increasing energy efficiency in industry or switching to lower-emission fuels.
• Emissions avoidance credits: These projects prevent emissions from occurring in the first place. Typical examples are protecting existing forests from logging (REDD+ projects) or building renewable energy sources to replace fossil fuels.
• Carbon Removal Credits (Removal): This involves actively capturing CO2 already in the atmosphere and storing it for the long term. This includes, for example, reforestation or technological solutions such as direct air capture (DAC).

2. Natural versus technological solutions

Credit-generating projects further differ based on whether they utilize the power of nature or modern engineering.

Nature-based solutions

These projects use biological processes to sequester carbon.

• Forest credits: Forests absorb CO2 and store it in biomass and soil. We distinguish A/R projects (afforestation of new areas), which have high initial costs and sequester carbon gradually, and REDD+ projects, which protect old forests with huge carbon reserves (the loss of 1 ha of rainforest releases over 400 tons of CO2 at once).
• Blue Carbon: It focuses on coastal ecosystems such as mangroves, seagrasses and salt marshes. These habitats can store up to four times more carbon per hectare than terrestrial rainforests.
• Regenerative agriculture: It includes practices such as limiting tillage and growing catch crops, which increase the soil's ability to retain carbon.

Technological solutions (Engineered)

These methods are often more expensive, but offer a higher degree of permanence.

• Biochar: Thermal decomposition of organic waste creates a carbon-rich substance that is added to the soil, where it remains stable for hundreds to thousands of years.
• CCS (Carbon Capture and Storage): Industrial emissions are captured directly at the source and injected underground into geological formations.
• Accelerated weathering of rocks: The dispersion of crushed silicate rocks (e.g. basalt), which naturally react with CO2 and bind it into stable minerals.

3. Market mechanisms: Voluntary vs. mandatory markets

Carbon credits are traded in two different systems:

1. Regulatory Markets (Compliance): They are governed by government regulations, such as EU ETS (European Emissions Trading System). Companies in certain sectors have a cap on their emissions. If they exceed it, they have to buy more allowances; if they emit less, they can sell the excess.
2. Voluntary markets (Voluntary): Here, companies and individuals purchase credits on their own initiative, most often as part of corporate social responsibility (CSR) or to achieve goals Net Zero. This market is not directly regulated by governments, but relies on independent standards such as Verra (VCS) or Gold Standard.

4. Quality and integrity criteria

For a carbon credit to be considered credible and truly help the climate, it must meet strict conditions:

• Additionality: The key condition is that the emission reductions would not have occurred without financial support from the sale of credits. If the project is profitable in itself or required by law, it does not meet the additionality condition.
• Permanence: The risk that stored carbon will return to the atmosphere (e.g. in a forest fire). Quality projects must guarantee storage for tens to hundreds of years and create so-called. buffer pools credits to cover any losses.
• Leakage prevention: A situation where forest protection in one location causes increased logging in a neighboring area.
• Baseline (reference scenario): Accurately determining what would have happened without the project. An incorrectly set baseline leads to over-crediting of benefits.

5. Challenges and Criticism: The Path to Transparency

Despite its potential, the credit market faces considerable criticism. Studies published in 2023 suggest that by 94 % credits from some forest projects may not represent a real reduction in emissions. This leads to accusations of greenwashing, when companies present themselves as "carbon neutral" without actually reducing their own emissions.

The European Union is responding to these challenges with new legislation. From January 2024, it will be prohibited to present products as carbon neutral solely on the basis of the purchase of offsets. At the same time, the EU has approved the first certification framework for carbon removal, which is intended to ensure high quality projects in the Union by 2050.

Carbon credits should not be seen as a "pass for pollution", but as additional tool towards real emission reductions within organizations. Moving towards Net Zero requires prioritizing reducing one's own footprint and using high-quality carbon removal credits only for residual emissions that cannot be eliminated otherwise. JRi&CO2AI