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What are the Different Types of Carbon Credits?

Updated: Nov 28, 2023

What are the different types of Carbon Credits? Image of cloudy forest.

Carbon credits are a type of tradable permit that allows the holder to emit a certain amount of greenhouse gasses, typically carbon dioxide. One carbon credit represents 1 metric ton of carbon dioxide that has been reduced or removed from the atmosphere. The goal of carbon credits is to incentivize organizations to reduce their emissions of greenhouse gasses by imposing a cost on those emissions.

Landowners are able to lease their land for carbon credits to organizations looking to purchase carbon credits to offset their greenhouse gas emissions. Landowners with forestland or farmland are well-suited for carbon offset projects on their property.

Verified Carbon Units (VCUs)

VCUs are credits generated by greenhouse gas reduction projects that have been verified by a third-party standard. They can be traded on voluntary carbon markets. VCUs are verified one ton of CO2 emission removal and/or reduction as long as it meets the standard of Verra, the company responsible for the criteria. The price for a VCU is the cost of buying one ton of CO2 and varies from different projects because of the way emissions are reduced. For example, the cost of carbon removal via technology or method and the quality of the carbon credit matters. The verification process can take a couple years which increases confidence in the CO2 removal and reduction process. Therefore, the price of a VCU is higher compared to other types of carbon offsets or credits.

California Carbon Offsets

These are credits generated by projects that reduce greenhouse gas emissions in California. They can be used to comply with California's cap-and-trade program or sold on the secondary market. As a part of the Compliance Offsets Program, the California Air Resources Board issues offset credits to projects for emissions reductions. The idea is to use a pricing system to incentivize investments in environmentally conscious initiatives. This market is the only of its kind in America and is one of the most extensive emissions trading systems (ETS) in the world. In addition, the state has a number of other policies in place to reduce carbon emissions.

Regional Greenhouse Gas Initiative (RGGI) Allowances

RGGI allowances are credits generated by the Regional Greenhouse Gas Initiative, a cap-and-trade program for power sector emissions in participating states in the Northeastern U.S. They can be bought and sold on the secondary market. RGGI is a program that uses a business-oriented approach of capping and investing to reduce emissions. Power plants within RGGI states must purchase an allowance for each ton of carbon dioxide they produce. Allocations are made available for purchase at quarterly auctions, and some states also hold a certain number of allowances to be sold for a fixed price or to be distributed in other ways.

American Carbon Registry (ACR) Credits

ACR credits are generated by greenhouse gas reduction projects that have been verified by the American Carbon Registry. They can be traded on voluntary carbon markets. ACR is responsible for managing the registration and verification of carbon offset projects that use approved carbon accounting protocols, and for providing offsets on a public registry system. Each offset stands for the removal of one metric ton of carbon dioxide from the atmosphere. The offsets ACR produces are unique to its activities in the California compliance market, ICAO, and the worldwide voluntary carbon market.

Climate Reserve Tonnes (CRTs)

CRTs are credits generated by greenhouse gas reduction projects that have been verified by the Climate Action Reserve (CAR). They can be traded on voluntary carbon markets. The Reserve works to create project protocols in line with the standards in the Climate Action Reserve Program Manual. Protocols developed by CAR are typically performance-based, utilizing industry benchmarks and other conditions that must be met to prove a project's climate impact and be eligible for the issuance of CRTs. CAR staff oversee the development of these protocols via expert and stakeholder working groups, public comment, and board approval.

Carbon Offsets

These are credits that are generated by projects that reduce emissions outside of the regulated sector, such as forestry or agriculture. Carbon offsets are often used by companies that want to offset their emissions voluntarily.

Carbon Harvest Deferrals

Carbon harvest deferrals are a land management strategy that involves delaying the harvesting of timber or other forest products in order to sequester more carbon in the forest. By leaving trees standing for a longer period of time, more carbon is stored in the forest ecosystem, reducing the amount of carbon dioxide in the atmosphere. Carbon harvest deferrals can be implemented on both public and private lands. They are often used as a carbon offset strategy, allowing companies to offset their carbon emissions by funding projects that sequester carbon in forests. In this case, the company pays the landowner to defer harvesting and maintaining the forest, and in return receives carbon credits for the amount of carbon sequestered. Carbon harvest deferrals can also have other environmental benefits, such as protecting biodiversity, maintaining soil quality, and preserving water resources. However, they can also have economic implications, as landowners may lose income from delayed harvesting. Each type of carbon credit has its own characteristics and requirements. Understanding the different types of carbon credits can help companies and organizations buy the carbon credits that are most suitable for their goals. Landowners who understand the types of carbon credits available as opportunities for their land will help initiate the carbon leasing process.


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