Before we tell you how to get paid for carbon credits, let’s cover their importance. The 2015 Paris Agreement brought together nearly 200 countries in a crucial commitment to cut greenhouse gas emissions by 50 percent of current levels by 2030 and achieve net-zero emissions by 2050. These actions are vital if the world is to limit global warming to 1.5 degrees Celsius and mitigate the impacts of the climate crisis.
Today, more and more companies are aligning themselves with this net-zero pledge. In 2020, more than 1,000 companies pledged to achieve net-zero emissions, which is twice the number from 2019.
However, the reality for many companies is that some emissions cannot be eliminated or reduced quickly enough. For these organizations, using carbon credits to offset their emissions is an essential step towards achieving net-zero emissions.
This increasing demand has posed forward-thinking businesses and landowners with a unique question: how to get paid for carbon credits?
To answer this, in this guide, we’ll walk you through
- exactly what carbon credits are,
- the recent and potential growth of the carbon market,
- and how to generate carbon credits and get paid for them.
What Is a Carbon Credit?
Carbon credits are a market-based tool used to help offset greenhouse gas emissions (GHGs). One carbon credit represents the reduction, removal, avoidance, or capture of one metric ton of carbon dioxide or its equivalent (CO2e) in another GHG—including methane (CH4), nitrous oxide (N2O), or fluorinated gases—from the atmosphere.
Check out our guide on easy and effective ways to reduce your carbon footprint.
How Are Carbon Credits Created?
Carbon credits are generated through two primary means: government-issued cap-and-trade programs and voluntary carbon offset projects.
In cap-and-trade programs, like the Californian Air Resources Board cap-and-trade program, governmental regulations limit the amount of greenhouse gases companies can emit by allocating them an allowance cap, which decreases over time. Companies that emit below the set limit earn sellable credits. The companies that emit more than their allocated limit can purchase these surplus credits.
This market-based system incentivizes private companies to reduce their greenhouse gas emissions in two ways: 1) by imposing additional costs on emissions that exceed an allocated limit and 2) by providing opportunities to generate revenue by selling excess allowances after successfully decreasing emissions.
Voluntary carbon offset credits, on the other hand, are created through carbon offset projects, which are typically run by non-governmental organizations or private entities. These projects can include a range of activities that aim to reduce greenhouse gas emissions or capture carbon from the atmosphere.
For example, a reforestation project that involves planting trees to absorb carbon dioxide from the atmosphere can produce carbon credits based on the amount of carbon that the trees sequester over time. Once a third party verifies these projects, the resulting carbon credits can then be sold to individuals or companies seeking to offset their emissions.
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The Growth of The Carbon Credit Marketplace
The carbon credit market is projected to experience significant growth in the coming years. Last year, Refinitiv reported that the value of traded global markets for carbon dioxide permits grew by 164 percent to a record 760 billion euros (US$851B), indicating the increasing value of carbon credits and their potential financial benefits for businesses.
The demand for carbon credits is also expected to continue to rise, with the market projected to grow at a compound annual growth rate (CAGR) of nearly 31 percent from 2020 through 2027, reaching a value of $2.4 trillion. And the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) has projected that the demand for carbon credits will increase by 15 times or more by 2030 and up to 100 times by 2050.
Both findings indicate a potential for substantial growth in the carbon credit market.
*image from McKinsey Sustainability
What’s more, trading in carbon credits could reduce the cost of implementing Nationally Determined Contributions (NDCs) by up to $250 billion by 2030. NDCs are an integral part of the Paris Agreement, which outlines each country’s plan to reduce national emissions and adapt to climate change.
This further emphasizes the financial potential of selling carbon credits.
How A Business Can Sell Carbon Credits?
To sell carbon credits, businesses must first participate in carbon offset programs that follow strict standards and protocols for producing carbon credits. These programs follow several carbon offset standards, including the
- American Carbon Registry (ACR),
- Climate Action Reserve (CAR),
- Gold Standard,
- Plan Vivo,
- and Verra Carbon Standard (VCS),
that register projects. Third-party verifiers, who are typically specialized firms or environmental consultancies not affiliated with the project developer or the standard they seek to register to, then verify the project. This prevents vested interests and conflicts of interest and ensures the validity and accuracy of the carbon offset project’s emission reduction claims.
The project then proceeds with the standard’s registration process to become an officially verified carbon offset project. From there, the business registers with a carbon offset registry to sell the carbon credits produced by the project. Prices for carbon credits vary based on the type of project, location, and demand and are either sold directly to other businesses or a brokerage.
You can learn more about how carbon credits are verified here.
How Landowners and Farmers Can Sell Carbon Credits
Studies suggest that agricultural soils could sequester over a billion additional tons of carbon each year, highlighting the potential of carbon farming as a revenue stream. What’s more, a report suggests the US agriculture and forestry sector alone can provide 10-20 percent of the emissions reduction needed to reach net zero by 2050.
This provides landowners and farmers with a unique opportunity.
They can generate revenue by selling carbon credits through carbon farming and sequestration processes. The practices used in these processes remove CO2 from the atmosphere by converting it into organic matter within the soil and plants, ultimately restoring the soil’s natural qualities, improving crop production, and reducing greenhouse gas emissions in the atmosphere.
To enroll in these programs, landowners and farmers must provide documentation of their carbon offset projects, such as proof of emission reductions or removals, as well as legal and ownership information.
Determining the volume and value of carbon offsets produced through each of these methods can be challenging. Again, this is where a third-party verifier, like the ones we mentioned above, comes in. First, a third party must validate that the carbon offset project design will in fact reduce or remove carbon dioxide as promised. Then, third-party verifiers will collect and analyze data from the property and sometimes even conduct a site visit to determine eligible offsets.
All nice to know. But how can a farmer sell carbon credits? And can you sell carbon credits from your land?
The answer to both these questions is: absolutely. Here are a few examples of projects that landowners and farmers can undertake:
- Using conservation tillage or no-tillage practices
- Participating in agroforestry
- Instead of removing or burning, returning biomass to the soil as mulch after harvest
- Using nutrient management and precision farming
- Altering manure management and changing feeding schedules
- Switching to lower-carbon fuel types
So how much revenue can these projects generate? Let’s answer this question by posing a slightly different question, how many carbon credits per acre of trees?
To answer this, consider a hypothetical forestry project. North Carolina State University estimates the upfront costs to establish a tree plantation at $100-450 per acre or $10,000-$45,000 in total. The USDA and EPA estimate that such a forest can sequester up to 1,000 metric tonnes of carbon annually, potentially generating $15,000-$30,000 per year on the voluntary carbon market. In the worst-case scenario—assuming the highest upfront costs of $45,000 and the lowest annual revenue of $15,000—it would take about three years for the plantation to recover the initial investment and start turning a profit.
Of course, this is a very rough estimate—markets are prone to fluctuation, different varieties of trees grow at different rates, environmental conditions change, and, as a result, carbon absorbs at differing rates, meaning revenue will vary. A recent study demonstrates this “Planted forests and woodlots were found to have the highest CO2 removal rates, ranging from 4.5 to 40.7 t CO2 ha−1 year−1 during the first 20 years of growth.”
*image from CBM Journal
Learn more about the different types of carbon offset projects.
Where To Sell Carbon Credits?
Once you’ve generated carbon credits through offset projects, it’s time to sell them. There are several options for selling carbon credits, including compliance carbon markets, voluntary carbon markets, and carbon exchanges.
Compliance carbon markets are regulated by governments and operate under a cap-and-trade system. These markets allow companies to buy and sell emissions permits, which are required to comply with emissions regulations.
Voluntary carbon markets are not regulated and are based on voluntary actions by companies and individuals. In these markets, buyers purchase carbon credits to offset their emissions voluntarily.
Carbon exchanges, such as the Chicago Climate Exchange and the European Climate Exchange, are marketplaces where buyers and sellers can trade carbon credits. These exchanges offer liquidity and transparency in the carbon credit market.
If you’re interested in reducing your business’s carbon footprint, download our guide on leveraging sustainability across the customer experience to learn more.