Carbon credits
Why emission reductions do not automatically become carbon credits
Reducing emissions is valuable, but a carbon credit is a specific instrument with its own tests, independent checks and registry process.
5 minute read
A reduction is a measurement, a credit is an instrument
An emission reduction is a measured decrease in emissions compared with a baseline. It can lower costs, support reporting and help meet targets, whether or not a carbon credit is ever involved.
A carbon credit is different. It is a serialised unit created in a registry under a specific standard, after an accredited independent body has validated the project design and verified the monitored results.
The tests a reduction has to pass
Standards and methodologies apply tests that many genuine reductions do not pass. The exact tests depend on the standard and methodology, but they commonly include:
- Additionality: would the activity have happened anyway without carbon finance?
- Baseline: is the counterfactual scenario credible and evidenced?
- Permanence: could the reduction or removal be reversed?
- Leakage: are emissions simply displaced elsewhere?
- Monitoring: can results be measured and evidenced over time?
- Host-country requirements: do national rules or authorisations apply?
What this means in practice
The right starting point is measurement, followed by a realistic reduction plan. A crediting route should be assessed only where it is credible, and the assessment should state clearly where the evidence is weak.
Any estimate of credit volumes before validation and verification is an indicative range based on assumptions. It is not a forecast of issued credits, prices or revenue.
This article is general information and is not legal, financial or investment advice. Requirements and market practice change, so specific projects should be assessed on their own facts at the time.