Definition and Proper Use of “Carbon Credits”
A carbon credit is a carbon offset used in the fight against climate change. In response to international commitments such as the Kyoto Protocol and the 2015 Paris Agreement, which aim to reduce GHG emissions, this mechanism has become essential for offsetting residual emissions.
In support of sustainable development and to meet the established targets, the Kyoto Protocol laid the groundwork for an international commitment to reduce GHG emissions and paved the way for further agreements. As a reminder, the Kyoto Protocol, adopted in 1997 under the United Nations Framework Convention on Climate Change, aims to improve the global environment by adopting a comprehensive decarbonization strategy.
It also introduces a flexibility system, comprising the Clean Development Mechanism (CDM) and the Joint Implementation Mechanism (JIM). These mechanisms allow industrialized countries to offset a portion of their emissions by financing emission-reduction projects in developing countries. A carbon credit is the unit of measurement for these offset projects or carbon contributions.
In fact, despite efforts to reduce emissions, there will always be emissions that cannot be avoided or significantly reduced; these are known as residual greenhouse gas emissions. To reduce these emissions, organizations will support carbon offset or carbon contribution projects that reduce emissions elsewhere. They therefore purchase and use these carbon credits—which represent equivalent emission reductions—to limit the impact of their activities.
Industrial facilities in France are subject to these mechanisms and can participate in auctions to obtain carbon credits. Prices vary depending on European markets and the level of demand. Carbon credit trading helps achieve these goals.
Carbon credits are often generated by these projects or through carbon sequestration, thereby helping to reduce the carbon footprint of a nation or a company. Each year, new eligible projects are evaluated according to specific criteria to obtain carbon credits.
As a reminder, carbon sequestration captures and stores CO2 from the atmosphere in order to sequester it permanently.
There are different types of projects, such as:
🔆 renewable energy
🌲 reforestation and forest conservation
⚡ energy efficiency
♻️ waste management
🌾 sustainable agriculture
These projects—such as those involving waste management, sustainable agriculture, or renewable energy—are certified under recognized standards and mechanisms, such as the Kyoto Protocol’s CDM, the voluntary Gold Standard, or the Verified Carbon Standard (VCS). This ensures the credibility and transparency of the emission reductions achieved by these projects.
In France, carbon credits have begun to gain importance among businesses. These companies, across various sectors, are seeking to offset their residual, unavoidable emissions as part of their emission reduction plans.
2. What is a carbon credit used for?
3. The Importance of Reducing Before Thinking About Offsetting
What is a carbon credit?
A carbon credit is defined as a unit equivalent to one metric ton of CO2 avoided or sequestered. These carbon credits are awarded to projects that reduce GHG emissions and meet certain criteria. It is a certification of carbon removals.
In order for these projects to be certified as eligible to issue carbon credits (and thereby reduce their carbon debt), the methodologies agree on four essential criteria. In France, eligible facilities can participate in emissions allowance auctions to obtain the carbon credits needed for their operations.
🗺️First, the project sponsor must demonstrate that without the funds from the sale of carbon credits, the project could not have been implemented and therefore would not have resulted in carbon sequestration.
📉Next, the amount of CO2 avoided or sequestered must be quantifiable using a recognized methodology.
🔢The metric tons of CO2 sold as carbon credits must be verifiable and accounted for annually.
🗓️Carbon avoidance or sequestration must take place over the long term (at least 7 years).
In France, carbon credits can be traded through trading systems such as SEQE. These systems are designed to regulate CO2 emissions from industrial facilities.
Projects that may result in the sale of carbon credits fall into two categories:
🟢Mitigation projects: developing renewable energy or using energy more efficiently;
🟢Carbon sequestration projects: developing natural carbon sinks (forests, oceans, soils) or industrial carbon sinks (machines that capture CO2 and store it in rock).
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What is a carbon credit used for?
Project developers can sell their carbon credits to companies, local governments, or individuals who are voluntarily working to reduce their emissions and aim to achieve carbon neutrality (see definition).
For businesses, this contribution/offsetting strategy is implemented following the completion of a GHG inventory and the establishment of a reduction plan.
In France, carbon credit prices fluctuate based on supply and demand in European markets.
The carbon offset is designed to offset so-called residual, unavoidable greenhouse gas emissions. It is based on the principle that GHG emissions generated in one location can be “offset” by participating in a GHG sequestration and reduction project carried out in another location.
When conducting a GHG inventory, an organization takes stock of all its emissions and implements a reduction action plan. When its emissions can no longer be reduced, it can contribute to the development of environmental projects by purchasing carbon credits until it achieves carbon neutrality, if desired.
💶🌿Carbon credits are a real currency in the fight against global warming.
The Importance of Reducing Before Thinking About Offsetting or Contributing
It is important to emphasize that the carbon levy can only be applied after emissions have been reduced as much as possible—or, at the very least, before a reduction plan is implemented.
A low-carbon strategy is the only way forward for businesses. They must do “their part” in reducing global emissions and in our country’s energy transition.
➡️ A carbon strategy begins with a comprehensive accounting of an organization’s emissions through the completion of a Bilan Carbone®. Decarbo’Solution® offers companies of any industry or size the ability to independently complete a comprehensive and compliant carbon assessment online, with guidance at every step.
➡️ Once the emissions inventory has been completed, the platform helps users organize their low-carbon strategy by identifying key emission sources and implementing a reduction action plan.
➡️ Once emissions have been reduced as much as possible, the platform helps companies contribute to environmental protection through projects that generate carbon credits; however, this is the final step in its low-carbon strategy.
In France, emissions levels across various sectors are regularly assessed to ensure a continuous reduction in emissions.
Verify the source of these funds
There are several projects on the carbon market that are not certified. If a company truly wants to contribute to the fight against climate change, it must verify the legitimacy of these projects.
On its platform, Decarbo’Solution® offers companies looking to go beyond simply reducing their emissions a page listing certified carbon offset projects aligned with the Sustainable Development Goals (SDGs). Companies that work directly through the Decarbo’Solution® platform can be sure they are making a real impact. Decarbo’Solution® experts advise you on purchasing high-quality carbon credits tailored to your specific goals (project type, geographic region, multi-year plan, etc.).
For more information on indirect emissions, we offer a guide to Scopes 1, 2, and 3 of the carbon footprint assessment.
Our carbon experts are available to provide a free of our platform, with no obligation. 🚀