During February 2024, Google searches for “How do carbon credits work” peaked during national conversations about using carbon credits to offset emissions — but what is a carbon credit, and how does it work?
SOURCE writers asked two Colorado State University sustainability experts to weigh in.
Lauren Gifford is associate director of CSU’s Soil Carbon Solutions Center (SCSC) and joint faculty in the Department of Ecosystem Science and Sustainability.
Her work asks how, and by whom, carbon is quantified, standardized and commodified for carbon removal solutions.
Gifford and the SCSC are hosting a three-day Carbon Finance Bootcamp May 13-16 at CSU Spur in Denver.
Mechanical Engineering Professor Jason Quinn is the operating director of the CSU Energy Institute and director of the Sustainability Research Laboratory.
He wants to advance sustainability initiatives by uncovering whether things touted as sustainable – from energy to agricultural products – are actually reducing carbon emissions.
Much of his research surrounds sustainability modeling.
What is a carbon credit?
Gifford: Carbon credits are lots of things. In the most simplistic terms, a carbon credit is a representation of an action that, in a multitude of ways, addresses carbon dioxide pollution. Credits are traded and exchanged on markets as a means of transferring capital to fund climate action.
Quinn: A carbon credit represents a certificate that is either the avoidance or removal of carbon dioxide from the atmosphere.
How do carbon credits work?
Quinn: Carbon credits can operate under a cap-and-trade system or as offsets. In a cap-and-trade system, governments or regulatory bodies set a cap on the total amount of greenhouse gases that can be emitted by all covered entities. Entities then buy or are allocated carbon credits up to the cap. If they wish to emit more, they must buy more credits from others. Conversely, if they emit less, they can sell their surplus credits. As an offset, companies or individuals buy carbon credits to compensate for their emissions by funding a reduction elsewhere, effectively making their activities carbon neutral.
Gifford: In the case of an ongoing project at CSU, Sustainable Water Quality Solutions, the carbon credit methodology is aimed at mobilizing finance to support sustainable land practices that will, in turn, foster broader ecosystem protection and resilience. The sale of the carbon credits from ecosystem restoration can encourage and help fund landscape and water quality enhancements.
Who typically buys carbon credits?
Quinn: The buyers of carbon credits are typically companies, governments or individuals seeking to offset their carbon emissions.
Gifford: Carbon credits are bought by all sorts of entities. Mostly, they are filtered through brokerage firms like many commodities and (re)sold to third parties.
Why do people buy carbon credits?
Gifford: Carbon credits are used, most often, to counteract industrial pollution. Businesses use them to meet corporate sustainability and net-zero commitments; individuals use them to offset the emissions from travel; and governments use them as part of complex climate action plans.
Quinn: People buy carbon credits for several reasons: 1) to comply with legal caps on the total amount of greenhouse gases they are permitted to emit; 2) to voluntarily offset their carbon footprint as part of corporate social responsibility initiatives; or 3) to support renewable energy, forest conservation or emissions reduction projects. Purchasing carbon credits is also a way to demonstrate environmental commitment and leadership in sustainability. Some publicly traded companies have made public statements about environmental goals, and there is the potential for those to be binding.
Where do people buy carbon credits?
Gifford: There are a number of third-party brokers selling what are essentially retail carbon credits.
Quinn: Carbon credits can be purchased from a variety of sources including: specialized carbon offset providers or brokers, directly from projects generating carbon credits, carbon trading platforms and exchanges, and nonprofit organizations that facilitate carbon financing for conservation or renewable energy projects.
It’s important to ensure that the carbon credits are certified by reputable standards (such as the Verified Carbon Standard, Gold Standard or the Clean Development Mechanism) to guarantee their integrity and environmental impact.
CSU is an emerging leader in carbon credit research.
In partnership with CU Boulder, experts from Mechanical Engineering, the Department of Ecosystem Science and Sustainability, and the CSU Energy Institute recently received a $650,000 grant from National Science Foundation aimed at using a carbon credit methodology to transform water quality management.
