Everything you need to know about carbon credits

Carbon credits are a mechanism put in place as part of the fight against climate change. In order to achieve global carbon neutrality by 2050, the countries united in the Kyoto Protocol put in place a system of bonuses and penalties for the most polluting sectors, in order to encourage them to avoid, reduce and "compensate" their emissions of Greenhouse Gases (GHGs).

In this way, companies have set up a voluntary carbon contribution in order to also participate in this global goal. But why go towards carbon credits? This responsible initiative is essential to maintain the economic system from which we reap the benefits. Everyone in their place, according to their abilities, can contribute to lightening the weight of the carbon debt that we are placing on the future of the world.

Carbon credits are, for now, only intended for companies and legal entities, whose activity has the biggest impact in tipping the balance in one direction or another. Through Nature-Based Solutions, we can issue carbon credits for your company. In this blog, let’s dive deeper into how EcoTrees carbon credits work.

What is a carbon credit? 

A carbon credit is a value of exchange on the voluntary and regulatory carbon markets. Following the Kyoto Protocol, the participating states developed a quota system that set a threshold of greenhouse gas emissions for companies in the most emitting sectors.

These carbon credits were first created for the most emitting sectors, and then later, on the voluntary market, for companies concerned with being part of a contribution to global carbon neutrality without being forced to, giving them the possibility to highlight their virtuous actions.

EcoTree positions itself on the voluntary carbon credits market The voluntary carbon offset market was put in place at the end of the 2000s, at the initiative of companies concerned with participating in the global reduction of GHG emissions. The private sector quickly had imitators, so that more and more companies entered into this process of avoidance, reduction and the "compensation". At EcoTree, however, we use the expression ‘contribution to global neutrality’, which is more meaningful, accurate and does not imply a " given right to pollute".

Its principle is as follows: any individual, company or community can participate in the financing of projects that contribute to reducing global GHG emissions. In 2020, 190 million tonnes of CO2 equivalent had been sold on the global voluntary carbon market. In November 2021, the global value of the voluntary carbon offset market had reached the symbolic threshold of one billion dollars.

According to the French Ministry of Agriculture and Food Sovereignty, "global demand for voluntary carbon credits could be multiplied by 15 by 2030, driven by the commitment of companies and the implementation of carbon pricing".

EcoTree provides carbon credits that are verified and certified by independent third-party organisations. These credits represent the reduction or removal of carbon emissions, achieved through various types of nature-based projects such as reforestation, renewable energy, and energy efficiency. By purchasing carbon credits from EcoTree, companies can offset their own carbon footprint and contribute to the fight against climate change through tangible, local projects actively removing emissions from the atmosphere.

How to claim a carbon credit

A carbon credit is equal to one ton of carbon dioxide, or the equivalent amount of another greenhouse gas (CO2eq) avoided or sequestered. Every type of project that avoids or sequesters one ton of CO2eq and is verified by a recognized, independent third party can earn a carbon credit, provided it meets the following requirements:

1. Additionality

This is based on the concept of a credible baseline scenario (meaning what would happen if no action was taken) and a project which demonstrates that its implementation will cause a difference in GHG emissions.

Carbon credits can therefore be obtained by avoiding GHG emissions (“avoidance credits”). For example, the installation of a wind turbine. In this example, the credible baseline is the production of electric energy through fossil fuels (petrol, carbon, gas, etc.). Our goal would be to produce the same amount of electric energy with a wind turbine as with fossil fuels. There is a clear difference in GHG emissions between the two.

These credits can also pertain to carbon dioxide (re)captured from the atmosphere due to the creation of a carbon sink. Take a forestry project for example. In the credible baseline, there’s an agricultural plot that we want to forest. This cultivable land sequesters carbon dioxide (up to 5 tCO2eq/ha). The number of carbon credits that could be issued is equal to the amount of CO2eq/ha sequestered due to the forestry project, minus the 5 tCO2eq/ha that would have been sequestered either way without forestation.

The additionality requirement is met only if it is proven that forestation allows the sequestering of more carbon dioxide than the credible baseline. To prove it, one must be able to calculate it. Ex ante carbon credits are issued in anticipation of the project's addition while ex post credits are issued only once the project exceeds the credible baseline (i.e., CO2eq absorption is higher).

Additionality must also be financial: the project in question cannot be financed without a valuation on carbon credits. In EcoTree’s case, the forest would not be planted without financial aid from a corporate partner who would earn as many carbon credits as tons of carbon that this forest is slated to sequester over time.

Additionality can also be regulatory. For example, if an organisation is legally required to plant a forest, it cannot earn carbon credits from the forestation as the credible baseline in this case would include the forest anyway.

2. Permanence

Carbon avoidance or sequestering must be irreversible, meaning that it is maintained indefinitely (as it’s not possible to stop global warming by sequestering carbon for only, say, seven years). But if we consider a tree being a living organism, its lifespan is limited. Sooner or later, it will decompose in the forest or be felled for its wood.

Even though carbon can be stored in a wooden structure for centuries, the carbon contained within this wood will inevitably return to the atmosphere in the near future. That’s why permanence does not exist in a single tree, but in an entire forest.

A mature tree will be replaced by a sapling and the cycle will continue. It is thus only possible to calculate the average carbon stock of the whole forest.
To better understand this, it helps to imagine a beehive: from the beekeeper’s perspective, the colony endures, but the lifespan of a single bee is very short. Even if the individual bees are constantly replenished, they make up the same colony that lives in the same hive. 

3. Measurability

The tons of carbon dioxide (and equivalents) that are avoided or sequestered must be measurable. In the wind turbine example, the electrical output is measured. In the forest example, the CO2eq sequestered and/or stocked is directly calculated from the volume of hardwood measured on the tract of land with or without thinning.

4. Uniqueness 

It is not possible to claim a single unit of carbon avoided or sequestered more than once. For this reason, each credit must be registered in a dedicated register.

5. Verifiability

A carbon credit-worthy project must be verified, validated, or certified by an independent, third-party organisation.

What does a carbon credit cost?

The price of a carbon credit varies depending on the market and the emission reduction or sequestration project that is being financed. For example, a carbon credit covering the installation of solar panels that will prevent a certain number of CO2 eq emissions will cost less than a carbon credit issued by a sustainable forestry project.

This is because the installation of solar panels (without any government or community support) has a significant initial cost but very low maintenance costs over time. The panels prevent a certain number of emissions, but do not capture those that have already been emitted, which is the only way to achieve a global carbon balance.

On the other hand, planting trees and maintaining a forest according to the principles of continuous cover management has a regular cost that exceeds the simple cost of planting and allows the active sequestration of CO2.

In the context of what we do at EcoTree, we must take into account the planting of trees and their protection, the clearing work that takes place in the first years, possible regrowth, thinning and harvesting, which is the entirety of the work and forest monitoring aimed at leading the plot towards an uneven forest. This results in a richer, more sustainable (life expectancy of a forest versus that of solar panels) sequestration project, and which also has the advantage of contributing to the preservation or even enrichment of biodiversity.

Which carbon credits should you avoid?

Carbon credits that should be avoided, even though they may be cheaper to buy, are those that take a light approach to a project's sustainability or social and cultural impact.

For example, we read here and there that "carbon avoidance or sequestration must be long-term (at least 5 to 7 years)." Five to seven years is a very short period of time, and it will not help us reach the goal of carbon neutrality by 2050.

On the other hand, obtaining a carbon credit by funding the planting of a sustainable forest is supporting a potentially infinite sequestration project: the trees will be harvested as needed, but will always be replaced by new plantings or natural regeneration, so the forest will be there as long as nature allows it. It's a whole different time scale.

Other projects to avoid are tree plantings (not necessarily forests) on the other side of the world. In theory, whether you sequester CO2 here or there is the same. But carbon credits from forest projects in, say, South America are inherently less rich avoidance projects. The reference scenario is cutting down a forest. Keeping it standing allows for the issuance of carbon credits.

The social dimension is also important: does the project benefit the local economy? Is it justified on a population scale? Buying carbon credits that would fund tree monoculture plantations on the other side of the world, depriving the population of arable land, would be a worse solution than the problem.

In this sense, it is better to avoid carbon credits that do not have a measurable positive impact on the local population, biodiversity, or that do not fit into a long-term scheme for sequestration of greenhouse gas emissions.

The advantages of EcoTrees quality carbon credits 

In order to meet requirements that we believe are conducive to establishing a sustainable society, we have developed our own method, the applicability of which to our forestry projects is validated by the certification body Bureau Veritas.

While most forestry methods, such as LBC or Verra, base their calculation on repeating a pattern that results in clearcuts, we have chosen to develop our own carbon methodology in order to issue carbon credits that take into account the specificity of our continuous cover forestry management.

Companies acquire our carbon credits do so because of the quality of the natural projects we carry out and implement with their help.

The price of the carbon credits we issue is in line with the market, even though the requirements we have set for ourselves are higher than those of common certification methods.

In addition to obtaining high-quality carbon credits, our partners have the opportunity to get even more involved by becoming owners of the trees in the forest created as part of their sequestration project.

Thanks to this specificity, their initial investment becomes a profitable investment: indeed, the trees are an asset, they have an annual value estimated at 2%. Not only are our projects sustainable and beneficial to nature, involving local actors (in France and Denmark) in social projects, but they also generate income from selective tree harvests.

EcoTree: Your Nature-Based Solutions provider

Our goal is to contribute to global carbon neutrality by supporting natural projects that lead to a richer biological life on Earth. That's why our main business is forestry: sustainably managed, forests are conducive to life, they enrich and protect biodiversity, they produce renewable raw materials for industry, construction, and furniture, energy, they contribute to the beauty of the world, public access, etc.

Thus, instead of technological carbon capture solutions, we prefer Nature-Based Solutions, which are permanent and have only positive impacts on life. Given the time required by nature to sequester carbon and the fact that terrestrial resources are not unlimited, it is expected that carbon credits issued by Nature-Based Solutions such as the ones we develop will increase in value in the years to come and that achieving carbon neutrality by 2050 cannot be delayed.

If the best time to reduce, sequester, and contribute to global neutrality was yesterday, the second-best time is today!