The Life of Carbon Offset: Project Cycle

As companies set increasingly ambitious commitments to reduce their carbon footprint, a market is developing that is helping them achieve their climate goals and support decarbonization beyond their own carbon footprint, thus accelerating the transition to a lower-carbon future.

Carbon credits - certified emission reductions from climate-positive projects - play a significant role in the decarbonization of the global economy by giving polluters an incentive to reduce their emissions. They are quickly being adopted by individuals, businesses and organizations from across the globe to encourage sustainable business practices and reach global climate goals.

The Carbon Credit Lifecycle

While the source of carbon credit may vary from project type to industrial sector, their lifecycle process remains the same i.e. they all go through a similar process.

So, let's dig deep into the carbon credit lifecycle - from point of creation to retirement - to better navigate the fast-evolving carbon market.

Each carbon credit or carbon offset represents a tonne of carbon reduced or prevented from entering the air or captured back from the air. A carbon offset goes through the following stages in its life:

1.?????Project Design

?The most important thing to know is that not every carbon emission reduction qualifies as an offset. To become a carbon offset, a carbon reduction has to fulfill certain quality criteria specified for its respective project types like an EV project, plastics, renewable energy, waste management or something else. This criteria or methodology is what developers use to quantify a project’s emissions reduction potential.

?Project developers begin the process by preparing a Project Design Document (PDD), which contains all the basic information about the project. The project developers propose a baseline of emissions reduction in the PDD, which is required to be assessed by a 3rd party body.

?2.?????Validation

?Upon successful completion of project design, the project design document is sent to an accredited 3rd party auditor who validates the project’s emission reduction claims and ensures the accuracy of the project's data and information published by the developer. The validation is done according to the requirements of the carbon project accreditation standard. Essentially, they validate baseline scenarios, monitoring process and methodologies for calculating emission reductions from the developer's documents.

?3.?????Registration

?Registration is the formal acceptance of a validated project by an accreditation standard. Registration is a prerequisite for the verification and certification of a project. It includes completeness check and vetting at multiple levels. Once the project is registered, it now becomes eligible to issue credits for a period of time called as Crediting Period. Issuance of credits can only be done by going through the process of Monitoring and verification for specific time intervals.

?4.?????Monitoring

?In the monitoring phase, the project participant is required to monitor actual emissions according to the approved methodology and document the same. The duration is up to the project proponent to decide, as a best practice, it is usually done for 6 months or 1 year depending on the volume of credits that can be issued for the respective monitoring period. For the subsequent period, the process has to be repeated again.

?5.?????Verification

?A 3rd party auditor ensures that project data reported is transparent, true, and has integrity. It verifies that emission reductions really happened, in the amount claimed, according to the approved monitoring plan.

?Verification is the independent review of the monitored reductions in GHG emissions that have occurred as a result of registered carbon project activity during the verification period.

?6.?????Issuance and Trading

?Upon successful verification, the 3rd party auditor submits the verification report to the issuance authority. Every registry has different names for carbon credits but regardless of their names, registries characterize carbon offsets through various quality assurance metrics.

?The issuance process comprises completeness check and vetting at multiple levels. Once the offset credits get issued to a project, developers can look for buyers in the carbon market.

Carbon credits are bought either by speculative investors or end buyers out of compliance with laws or voluntarily to reduce carbon footprint. End buyers can be governments, individuals and corporations.

The majority of carbon credits, currently, are bought by heavy industrial emitters as part of their compliance requirements. But many businesses and organizations are now also buying because of their voluntary climate commitments.

Buyers can buy offsets from developers, traders, brokers or exchanges. No matter whether the carbon offsets are bought by investors or by end buyers to meet their climate commitments, once they’re used and reported as emission reduction, they should be retired. They cannot be available anymore for resale and should be removed from the marketplace and labeled as retired in the registry records.

To know more about carbon credits and to get advisory/consultancy services for end-to-end management of carbon credits, contact us at [email protected]