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https://doi.org/10.58248/PN713

A carbon credit is an instrument representing the avoidance, reduction or removal of atmospheric greenhouse gases (GHG), measured in tonnes of carbon dioxide equivalent (tCO2e). There are three main outcomes for projects creating carbon credits: 

  • Avoided emissions, for example by preventing deforestation and forest degradation (REDD+). 
  • Reduced emissions, for example by restoring peatlands. 
  • Removal and storage of CO2, for example by direct air capture or restoring forests

There are three types of carbon markets that trade carbon credits, one of which is the the unregulated voluntary carbon market (VCM), where individuals or companies claim the credits towards their voluntary climate commitments. The evidence of low prices and mixed integrity of credits have led to concerns from the Climate Change Committee (CCC) that offsets might be used by businesses as a substitute to directly reducing emissions, despite their uncertainty.

The effectiveness of carbon credits is influenced by their integrity, with evidence that globally there are over-estimates of the amount of emissions that are avoided or reduced. There are several initiatives seeking to address issues relating to the integrity of carbon credits such as the Oxford principles, the Science Based Targets initiative and the Voluntary Carbon Markets Integrity Initiative.

Key points

  • A carbon credit represents the reduction, removal or prevented release of greenhouse gases by natural or technological processes. Businesses and individuals can purchase credits on the voluntary carbon market and may use them to offset their own emissions. 
  • Ensuring that credits truly represent carbon reduction or removal is complex and uncertain. It can be difficult to determine that carbon would have been emitted otherwise and whether any carbon storage is permanent 
  • Projects that generate carbon credits can raise funds and potentially benefit society and the environment by protecting and restoring natural ecosystems and increasing biodiversity. However, some projects can have adverse impacts on the environment and indigenous peoples and communities 
  • There is a lack of transparency in reporting the use of carbon credits and whether the carbon offsets are used in place of direct emission reductions. 
  • The CCC recommended that Government publish guidance for businesses on what activities it is appropriate to ‘offset’ and when. A Government consultation will consider supporting the growth of high-integrity carbon and nature markets, including the role of regulation. 
  • Commentators suggest that regulation of both carbon crediting projects and business use of credits could improve carbon market integrity. Some emerging guidelines suggest carbon credits should not be used to offset emissions directly. 

Correction: the section on over-estimation (over-crediting) was amended to reflect that a study cited has been contested.

Acknowledgements

POSTnotes are based on literature reviews and interviews with a range of stakeholders and are externally peer reviewed. POST would like to thank interviewees and peer reviewers for kindly giving up their time during the preparation of this briefing, including: 

Members of the POST Board* 

Oda Almas, Forest Peoples Programme* 

Kavya Bajaj, Gold Standard 

Andrew Balmford, University of Cambridge 

Ligia Baracat, Forest Peoples Programme 

Ian Bateman, University of Exeter* 

John Broderick, Royal Society of Chemistry 

Derik Broekhoff, Stockholm Environment Institute* 

Kathryn Brown, The Wildlife Trusts 

Annette Burden, UKCEH* 

Travis Caddy, Evident Global* 

Ronan Carr, BeZero 

Jonathon Crook, Carbon Market Watch* 

Forrest Fleischman, University of Minnesota* 

Barbara Haya, Berkeley Carbon Trading Project 

Keith Hyams, University of Warwick 

Immaculata Casimero, South Rupununi District Council 

Annabel Jenkinson, Global Trust 

Injy Johnstone, University of Oxford* 

Shivani Katyal, DESNZ* 

Robert Mendelsohn, Yale University* 

Bea Natzler, Climate Change Committee* 

Finn O’Muircheartaigh, BeZero 

Paul Ekins, UCL 

Isabela Butnar, UCL  

Oliver Broad, UCL 

Adam Pellegrini, University of Cambridge 

Simon Petley, DESNZ* 

Theo Platts-Dunn, Evident Global* 

Catherine Price, University of Nottingham*  

Benedict Probst, ETH Zurich  

Anton Root, Allied Offsets* 

Pat Snowdon, Woodland Carbon Code* 

Robbie Watt, University of Manchester 

Thales West, Vrije Universiteit Amsterdam 

Philippa Westbury, CO2RE Hub Grantham Institute Imperial* 

Louis Worthington, Climate Change Committee*  

*denotes people who acted as external reviewers of the briefing 


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