Currently, carbon credits are becoming a key pillar of the climate strategies of modern corporations. However, as carbon markets mature, buyers, regulators and auditors are placing increasing emphasis on quality, stability and verification of these credits. For For organizations that want to effectively engage in these markets, it is essential to understand the different types of credit and their risk profiles.

What is a carbon credit?

Carbon credit represents one metric ton of carbon dioxide (CO2) or an equivalent amount of other greenhouse gases that have been reduced, eliminated or permanently removed from the atmosphere. These credits can be bought, sold or retired through regulated or voluntary markets, creating financial incentives for climate action.

Two main categories of carbon credits

1. Compliance Carbon Credits: These credits, often called allowances, operate under mandatory „cap-and-trade“ systems set up by governments. Companies covered by these schemes must surrender allowances corresponding to their verified emissions. They are legally binding, are subject to strict monitoring, reporting and verification (MRV) and their price is influenced by regulatory decisions and market failures. Major markets include, for example, the EU Emissions Trading System (EU ETS) or California's Cap-and-Trade program.
2. Voluntary Carbon Credits: These credits, known as offsets, are purchased by organizations and individuals who want to offset emissions beyond regulatory requirements or support climate-positive projects. They are verified by independent third-party standards such as Verra, Gold Standard or Puro.earth. Their price varies significantly depending on the quality of the project, permanence, and other benefits.

Key types of voluntary market projects

The voluntary market covers a wide range of technologies and geographies:

• Renewable energy: Wind, solar, or hydropower projects that replace fossil fuel electricity generation.
• Forestry and REDD+: Projects aimed at preventing emissions through protection of existing forests. Although they are scalable, they carry risks associated with stability and management.
• Reforestation: Planting trees that remove carbon from the atmosphere over the long term, often requiring 30 to 100-year periods.
• Carbon sequestration in soil: Agricultural practices that increase soil organic carbon.
• Methane capture: Projects capturing methane from landfills, wastewater and agriculture.

Definition of high quality and risks

To be considered credible, a carbon credit must demonstrate additionality (complementarity), long-term stability, independent verification, avoidance of double counting and transparency.

Credit risk varies according to its nature. Low-risk credits are characterized by inherent stability, as is the case with biochar or geological storage, and have strong MRV systems. On the contrary, high-risk credits require increased due diligence, especially when it comes to nature-based solutions in regions with weak governance or new methodologies without precedent.

The carbon market is rapidly shifting from quantity to credibility. Future market value will be determined by credits that pass verification and deliver measurable climate impact. Technical rigor and audit-ready project design are no longer optional, but are fundamental to successful carbon projects.  JRi&CO2AI