In the race for a more sustainable economy, carbon credits have become a hot topic: in addition to helping companies offset their greenhouse gas emissions, the system transforms pollutant reductions into a kind of "green currency" and can even generate profits. But what is it, how does it work, and how can you profit from it? Let's take a look.
What is carbon credit?
A carbon credit is an emission permit for a specific amount of carbon dioxide equivalent (CO₂e) or other greenhouse gases (GHG). Each credit corresponds to the permission to release one metric ton of CO₂e into the atmosphere. A company can receive credits if it reduces its emissions below a set limit.
Companies typically generate credits through efforts and investments that promote reforestation, energy conservation, and the use of renewable sources. It's also possible to purchase credits from other companies that haven't fully utilized them.
The concept originates from the Kyoto Protocol, approved in 1997 and in force since 2005. Brazil is among the signatory countries. The agreement established that developed nations should reduce their greenhouse gas emissions by approximately 5% compared to 1990 levels, in the period from 2008 to 2012.
Since then, carbon credits have become a central piece in the fight against global warming. The Paris Agreement, adopted in 2015 at COP 21, expanded their reach by committing virtually all nations to emissions reduction targets. Today, they remain a crucial mechanism for achieving global climate commitments.
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How carbon credits work
Carbon credits are the mechanism that allows the transfer of economic value between companies and environmental regulators. In most cases, the annual allocation is determined by the country's or region's emission targets.
In cap-and-trade systems, a regulator sets a maximum emissions ceiling, and companies trade credits based on demand. Over time, this ceiling decreases, making it more difficult to maintain operations without exceeding it. Thus, companies that emit less can sell excess credits to others that have difficulty complying.
Ultimately, those who invest in emissions reduction gain a competitive advantage, both by meeting targets and by generating additional revenue.
Types of Carbon Credits
There are two main formats:
- CERs (Certified Emission Reductions): issued by regulated projects, such as the Kyoto Protocol's Clean Development Mechanism (CDM), and overseen by international agencies. Each CER corresponds to one ton of CO₂e reduced or removed and can be used to meet regulatory targets.
- VERs (Verified Emission Reductions): Voluntary market credits, with no legal obligation, verified by independent third parties. They are used by companies and institutions that wish to voluntarily offset their carbon emissions.
The key difference is that CERs have official compliance status, while VERs are voluntary credits that serve their own sustainability goals.
What are the problems with Carbon?
Carbon production became a problem due to its excess. This process, which should be natural and balanced, was intensified by human activities after the Industrial Revolution. This is why the amount of carbon in the atmosphere became so low.
These atmospheric emissions disrupt the Earth's natural warming dynamics. Instead of having an ideal greenhouse effect, necessary to maintain a balanced temperature on the planet, we have to deal with overheating, as the increased concentration of the gases responsible for this process prevents heat from escaping into space.
The concentration of greenhouse gases alters the Earth's entire ecosystem, causing global warming: overheating causes climate change worldwide. Our entire lifestyle is intrinsically linked to the seasons, whether it's excessive or insufficient rainfall. Intense heat and extreme cold are details that completely alter the dynamics of life on Earth.
Therefore, we are witnessing drastic changes such as:
- melting glaciers;
- floods and droughts;
- loss of biodiversity;
- erupting volcanoes, etc.
How to produce Carbon Credits
Companies have the opportunity to generate credits by engaging in various emissions reduction, capture and storage activities, for example:
- clean energy initiatives;
- energy management;
- improved carbon sequestration;
- land administration;
- afforestation and reforestation.
Carbon Credit Calculation
To calculate the carbon credits to be issued, compare the greenhouse gas emissions of a project scenario (which describes the situation in which the project is completed) with those of a reference or baseline scenario (which describes the situation in which the project is not implemented). Carbon credits are issued for the CO2 emissions avoided or removed thanks to the project, calculated by subtracting the project scenario emissions from the baseline emissions value.
Advantages of Carbon Credits
As mentioned previously, each carbon credit corresponds to one ton of carbon that was not emitted into the atmosphere. Therefore, simply having the credit is already an advantage. Companies or countries that see no alternative to reduce their emissions find an advantage in purchasing this credit.
For some organizations, countries, and companies, the advantage lies in selling carbon credits, as these institutions are able to reduce their carbon use. This way, they boost their economies with the value they can invest in their sustainable activities.
The purchase of carbon credits by environmentally conscious companies is beneficial to their image. Sometimes, a company behaves sustainably, but there's a certain amount of carbon it can't stop emitting. In this case, purchasing credits demonstrates the company's commitment to encouraging sustainable activities.
Disadvantages
The main disadvantage of carbon credits lies precisely in this exchange market. Some institutions and countries manage to accommodate themselves in this market to continue emitting greenhouse gases. They don't invest in actions to avoid emissions because they can buy unlimited credits.
In this case, reducing 1 ton of carbon, or 1 credit, will never be enough. Because someone will actually use that ton, there will be no reduction in emissions. This is a disadvantage that causes much controversy among environmentalists and world leaders.
The use of carbon credits also needs to be considered sustainably. Understand that this is an alternative for emergency needs, not a way to satisfy someone else's savings.
Everyone's focus must be on reducing greenhouse gas emissions. Only then will it be possible to contain the negative impacts of global warming.
How much is 1 carbon credit worth?
The value of a carbon credit depends on different factors, such as the type of project, the methodology used and the region of origin.
Unlike traditional commodities like oil or gold, carbon credits don't have a single, globally fixed price. Their value depends on variables such as the type of project that generated the credit, the methodology used, the certification involved, and market supply and demand.
One of the main factors influencing prices is the type of market. In the regulated market, where companies are required to offset emissions according to government regulations, prices tend to be higher and more stable, as there is constant demand. In the voluntary market, prices can fluctuate more, as they are influenced by corporate trends, emerging regulations, and companies' commitment to climate goals.
Another key aspect is the type of project. Credits generated by reforestation or forest conservation projects, for example, generally have a higher value because, in addition to reducing emissions, they generate environmental and social co-benefits, such as protecting biodiversity and generating income for local communities.
How Alutal contributes to reducing emissions
Companies that adopt industrial monitoring and automation technologies can reduce energy consumption and, consequently, greenhouse gas emissions.
Alutal offers precise instrumentation and measurement solutions that enable industrial processes to operate optimally, avoiding waste and improving energy efficiency. This reduces fuel and input consumption, reducing the carbon footprint of operations.
In addition to operational savings, this efficiency helps companies achieve sustainability goals and participate in carbon credit programs.
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