Different ways to buy carbon explained: from spot purchases to multi-year agreements

When you decide to buy carbon credits to offset your company’s carbon emissions, there are a few different ways you can go about it:

• Spot purchase
• Forward purchase
• Multi-year purchase
• Investment into a carbon project

In this article we’ll explain these different ways to buy carbon credits, and the pros and cons of each.?

What is a spot purchase of carbon credits?

A spot purchase is when carbon credits are bought and sold with immediate payment and delivery.?

The buyer pays in full for the carbon credits at the time of purchase, and they are delivered and?retired?straight away (days or weeks at the most) – so this is only possible for carbon projects which are selling?ex-post carbon credits?(i.e. the emissions reduction or carbon removal has already taken place).?

An example would be if a business bought ex-post carbon credits from a credible reforestation project such as?Ackron Mixed?in the UK.

The buyer receives their?carbon offset certificate?and the credits would be retired immediately to prove their purchase.?

The pros of a spot purchase of carbon credits are:

• Guaranteed price?of carbon credits
• Certainty about availability?of carbon credits
• Guaranteed level of impact?– the carbon benefit is already verified and credits are retired immediately to prove this.

And the cons:?

• Poor visibility for future budget planning:?the price of the carbon credits for the project or project type you’ve bought from may change in the future, so if you want to repeat the purchase in a following year it may need a different budget
• Supply constraints:?for larger purchases you may struggle to find carbon projects with enough availability of ex-post carbon credits to fulfil your offsetting needs.

For these reasons, spot purchases of carbon credits are optimal for small and medium purchases (up to $1 million), where forward budget planning is not a concern and so a one-off purchase makes sense.?

Read the rest on our blog, covering forward purchases, multi-year purchases, and investing in a carbon project.