Buying Carbon Credits

The world’s largest companies have made a big splash with their carbon offset purchases. The voluntary market for credits has boomed in the past 18 months, driven by companies’ new net-zero goals and their interest in the international climate agreement in Paris. But it’s important for companies — and consumers — to understand which projects they’re buying credits from and how the credits are verified.

Companies can buy carbon credits from nearly any project that reduces, avoids, destroys or captures greenhouse gas emissions. These include forestry or agricultural projects, renewable energy facilities and even livestock farmers who cut methane emissions from their barns. Then there’s the “compliance market,” where governments set limits on how much carbon certain sectors can release. This is where the majority of carbon.credit are sold in the world’s biggest markets.

Many of the companies that have been most active buyers of carbon credits in the voluntary market over the past 18 months, according to Ecosystem Marketplace’s latest ‘Markets in Motion’ report released two weeks ago, are energy, consumer goods and finance firms. This makes sense given these industries rely heavily on polluting activities. Energy companies also need to offset their emissions in order to comply with government carbon caps. But financial firms have an added incentive to invest in carbon reduction: Their shareholders are concerned about the company’s exposure to climate risks and want them to do more than just lower their emissions.

Which Companies Are Buying Carbon Credits?

But a look at the underlying data shows that not all of these companies are buying carbon credits from the best sources. For example, the data reveals that companies like Netflix, Etsy and Delta Airlines buy from projects with questionable credibility. They often buy from environmental groups that sell the credits, or they buy from projects that aren’t necessarily reducing emissions but rather benefitting local communities.

To verify that a carbon credit has been earned, a third party must conduct a thorough inspection to make sure the reforestation or other project is actually removing carbon dioxide from the atmosphere. This is called the ‘project verification’ process. A credit is only valid for a set number of years and can’t be used again after that period. It’s like a medical certificate: Would you let a doctor perform surgery without checking his credentials? There are also independent auditors and retail traders who link supply and demand in the carbon markets. The retail traders then bundle and sell the carbon credits to end buyers, with a small commission.

Investors also pay attention to whether a carbon project is meeting “additional co-benefits,” which are social or environmental goals in line with the UN Sustainable Development Goals (SDGs). These can include things like improving welfare for the community, water quality or reducing economic inequality. For this reason, projects that meet SDGs can trade at a premium to those that don’t. Of the major corporate purchasers of offsets contacted by Bloomberg Green, only ride-hailing company Lyft and energy firm Xerox declined to comment, while airlines Delta, Air France-KLM and Vattenfall AB were monitoring developments.