Carbon Credit Exchanges Expire
As climate policy and regulations grow more strict, companies need ways to offset their greenhouse gas (GHG) emissions. These are often called “carbon credits” or simply “offsets,” and they can be purchased from any project that reduces, avoids, destroys, or captures GHGs in a way that meets certain environmental and market standards.
The carbon credit exchange market has two major sectors: the compliance market, which is regulated by governments, and the voluntary market. The compliance market is made up of companies that participate in cap-and-trade schemes or other mandatory programs to control their emissions. These markets are designed to commoditize the emission of carbon and encourage businesses to reduce their use of fossil fuels or other industrial products that emit greenhouse gases. Participating companies receive an initial credit allocation, which can be increased by reducing their emissions.
Those credits then need to be traded on an exchange in order to meet their emissions reduction obligations and be deducted from a company’s carbon footprint. The carbon credit exchange is typically an online platform where sellers (or developers) submit their projects, and buyers can purchase them.
Do Carbon Credit Exchanges Expire?
While the voluntary market has been growing quickly, there are a few key challenges that need to be addressed in order to increase its sustainability and integrity. First, there needs to be a strong core set of standards that ensure that all credits adhere to certain quality thresholds.
Second, there needs to be a solid infrastructure in place for the trading of these credits. These should include a registry that verifies that projects meet the established standards, and reference contracts that allow buyers to bid on credits that meet their desired criteria.
As more companies seek to address climate change through emission reductions, the need for carbon offsets is growing. These credits are generated through a wide range of projects that reduce, avoid or remove greenhouse gas emissions. For these projects, a credit is issued by an independent party (such as Verra’s Verified Carbon Standard, the Gold Standard, the Social Carbon and Climate Standard or Community and Biodiversity Standards), usually in digital form. These digital certificates are held in electronic registries, which allow a credit to be tracked and verified throughout its lifecycle.
A carbon credit can be sold or traded in many ways. These include direct purchases from project developers, through environmental commodity exchanges that list credits for sale and work with registries to enable transactions, or through carbon brokers. When purchasing carbon offsets through a broker, a buyer may want to consider the project developer’s track record in terms of sustainability. This will help them understand the risks and rewards of a project, as well as its potential to deliver on their commitments.
Another thing to consider is the “vintage” of the offsets that a seller is offering. The vintage of the offset is the year it was created or issued, and can have an impact on quality and pricing. For example, credits that were issued a few years ago are generally less valuable than those with longer-term vintages. The vintage is important for two reasons: it allows buyers to more easily gauge the quality of the offsets they’re buying, and it helps ensure that projects have a history of delivering on their promises.