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What is carbon offsetting through buying carbon credits?

Are you looking to purchase carbon credits to reduce your carbon footprint but not sure how to do this? We walk you through the buying process for carbon credits.

As the world progresses to Net Zero, more and businesses are able to offset their carbon footprints, investing in sustainable projects all over the world. But how exactly does offset work? What are your options to buy carbon offsets?

What are carbon offsets? How can I do it? What does it mean to trade carbon credits?

Carbon offset refers to the process of buying carbon credits in the carbon market, which is generated by CO2 absorption initiatives, to compensate for an individual or business’s carbon emissions. The first step is to calculate the carbon footprint for your business. For example, suppose a company released 1,000 tonnes in greenhouse gas (GHG) during a particular year. To reduce this footprint, they will have to purchase 11,000 carbon credits of which is one ton of CO2-equivalent. This accounting method is a easy way to make sure that the earth doesn’t produce more than it is able to absorb in addition to providing crucial financing for projects to reduce carbon emissions.

After you’ve identified your carbon footprint and you’ve implemented measures like changing to clean energy, or reducing energy consumption to decrease the amount, it’s now time to offset any remaining carbon emissions with carbon credits. What are “good” carbon credits? Or are they bad ones?

Many ways to purchase carbon credits.

There are many options to purchase carbon credits that offset the impact of your carbon footprint.

Purchase carbon credits direct from the developers

The easiest way to purchase them is to go to the source, which is from the company that is that is responsible for the project you’d like to support. In this instance the company could invest in the process of developing the project, with the assurance of a returns in the form of future carbon credits, or purchase what are known as Emission reduction purchase agreements (ERPAs) which are a prepayment for carbon credits that are given in the event that they are created. This option is more popular in cases where the project is in a later stage of development.

There are two major advantages of purchasing carbon credits from your developer of the project:

It allows you to gain greater knowledge of the project and be involved in its management
You can get lower prices that you would get from the reseller

However, this choice isn’t suitable for everyone.

it takes an amount of study and expertise to find and pursue the most suitable projects. It requires a certain amount of research and knowledge to identify suitable
the carbon credits aren’t immediately available when you purchase the credits. They are not immediately available when you purchase

Buy carbon credits from an intermediary

Many project developers partner with brokers to coordinate the purchase for their carbon credits. In this instance the company should contact the broker and provide them specific details regarding the kind of project you’re interested in (location and price.). The broker would locate an opportunity that you like then buy carbon credits on behalf of your company and then resell them back to you, with a mark-up.

This is more feasible than directly with a project, especially in the case of a significant amount of carbon offsets. As an intermediary the broker is responsible for every transaction.

There are a few significant negatives to be considered:

Brokers aren’t very forthcoming about their pricing structure, which means there is no way to know the cost of the carbon credit and the broker’s fees
In some instances the brokers are charged by companies nearly three times the amount they pay developers of projects and thereby utilizing their power as middlemen and destroying the objective of climate finance.

The Financial Times recently exposed just how the opaque carbon credit broker’s business practices are. This isn’t a choice we suggest.