All you Need to Know About Carbon Credits

Are you aware that carbon dioxide emissions have hit an all-time high of 40 billion tonnes in 2019 alone?

That’s a staggering figure that highlights the urgency of addressing climate change. One solution to reduce greenhouse gas emissions is using carbon credits. In fact, the global carbon credits market is projected to reach $315 billion by 2030, according to a report by Allied Market Research.

Carbon credits are becoming increasingly popular for businesses to offset their carbon footprint and meet sustainability goals. But what exactly are carbon credits, and how do they work? This article will cover all you need to know about carbon credits.

What are Carbon Credits?

Carbon credits are a type of tradable permit that allow companies and organizations to offset their greenhouse gas emissions by investing in projects that reduce or remove carbon dioxide from the atmosphere.

Each carbon credit represents one metric ton of carbon dioxide that has been prevented from being released into the atmosphere or removed from it. These credits can be bought and sold on carbon markets, where companies can purchase credits to offset their own emissions and meet their emissions reduction goals.

The idea behind carbon credits is to create a financial incentive for companies to reduce their carbon footprint and invest in sustainable practices while encouraging the development of projects that help mitigate climate change, such as renewable energy projects or reforestation efforts.

How does it work?

Carbon credits work on the “cap and trade” principle or “emissions trading.” Under this system, a government or regulatory body sets a limit, or cap, on the amount of greenhouse gases that a company or organization can emit. 

Companies are then allocated a certain number of carbon credits based on their emissions, with each credit representing one ton of carbon dioxide equivalent.

If a company emits more greenhouse gases than its allocated credits, it can purchase additional credits from other companies that have emitted less than their allocated credits. Conversely, if a company emits less than its allocated credits, it can sell its excess credits to other companies.

The market price of carbon credits is determined by supply and demand. If the demand for credits is high, the price will be high, and if the supply of credits is low, the price will be low. This creates an economic incentive for companies to reduce their emissions and invest in sustainable practices.

Carbon credits can be generated by a wide range of projects, including renewable energy projects like wind or solar power, energy efficiency projects like building retrofits or efficient appliances, and reforestation or other land-use projects that sequester carbon. 

Third-party auditors verify these projects to ensure that they meet certain standards and that the emissions reductions are real and permanent.

Real life example of how carbon credit works

The European Union Emissions Trading System (EU ETS) is a real-life example of carbon credits in action. Under this system, the EU limits the total amount of greenhouse gas emissions emitted by certain industries, such as power plants and factories. The cap is reduced over time to help achieve the EU’s emissions reduction targets.

Companies within the EU ETS are allocated a certain number of carbon credits based on their historical emissions. If a company exceeds its allocated credits, it must purchase additional credits on the market. Conversely, if a company emits less than its allocated credits, it can sell its excess credits to other companies.

In this way, the EU ETS creates a financial incentive for companies to reduce their emissions and invest in cleaner technologies. 

For example, a power plant might choose to invest in renewable energy sources, such as wind or solar, to reduce its emissions, thereby reducing the need to purchase additional credits. 

Alternatively, a company might invest in energy-efficient equipment or adopt more sustainable practices to reduce emissions and earn excess credits that can be sold to other companies.

How can Rural Farmers Benefit From Carbon Credit Schemes

Rural farmers can take advantage of these schemes by:

  1. Adopt conservation agriculture practices such as no-till farming, crop rotation, and cover cropping to sequester carbon in the soil.
  2. Participate in carbon offset projects focusing on agricultural practices that sequester carbon, and earn carbon credits for the carbon sequestered.
  3. Alternatively, participate in reforestation projects by planting new trees or maintaining existing forests on their land, and earn carbon credits for the carbon dioxide that the trees absorb.
  4. Sell the earned carbon credits on carbon markets to companies or organizations looking to offset their own greenhouse gas emissions.
  5. Ensure that the project is legitimate and provides a fair return on investment by conducting proper research and setting up monitoring systems to measure the amount of carbon sequestered.

What are the Pros and Cons of Farmers joining Carbon Credit Schemes?

The first advanatge is increase in revenue streams. By participating in carbon offset projects, farmers can potentially earn additional revenue streams by selling carbon credits on carbon markets. Other advantages are:

  • Encourages sustainable practices: Carbon credits provide an economic incentive for farmers to adopt sustainable agricultural practices that reduce their environmental impact, such as conservation agriculture or reforestation.
  • Diversification of income: Carbon credits can provide farmers with a diversified source of income that is not dependent on crop yields or commodity prices.
  • Reduced financial risk: By diversifying their income streams, farmers may be able to reduce their financial risk and improve their overall financial stability.

Disadvantages to farmers

The first con is the high initial investment required to participate in carbon offset projects. This is because the project requires the farmer to purchase expensive monitoring equipment. Other disadvnatges are:

  • Risk of market fluctuations: The price of carbon credits can be volatile, and farmers may not be able to predict or control market fluctuations.
  • Complex regulations: Carbon credit programs can be complex and require farmers to comply with strict regulations and reporting requirements.
  • Limited markets: The carbon credit market may be limited, and it may be difficult for farmers to find buyers for their carbon credits.
  • Long-term commitment: Participating in carbon offset projects requires a long-term commitment, and farmers may need to continue using sustainable practices for several years to maintain carbon sequestration.

Where can farmers in Kenya purchase carbon credits

Farmers in Kenya can purchase carbon credits through organizations specializing in carbon offsetting and trading. Here are a few options:

  1. Wildlife Works: Wildlife Works is a conservation organization that sells carbon credits generated from its REDD+ projects in Kenya. REDD+ stands for Reducing Emissions from Deforestation and Forest Degradation, and involves protecting and restoring forests to reduce greenhouse gas emissions. Wildlife Works works with local communities to develop sustainable livelihoods that don’t rely on deforestation, and then sells the resulting carbon credits to companies and individuals looking to offset their carbon footprint.
  2. Gold Standard: The Gold Standard is a certification body that sets standards for carbon offsetting projects and certifies their carbon credits. The organization works with various carbon offsetting projects around the world, including in Kenya, and provides a marketplace where companies and individuals can purchase certified carbon credits.
  3. FairClimateFund: FairClimateFund is a Dutch social enterprise that works with smallholder farmers in Kenya to develop sustainable agriculture practices and generate carbon credits through the use of renewable energy and agroforestry. The organization sells these carbon credits to individuals and companies looking to offset their carbon footprint and support sustainable development in Kenya.

What is the value of carbon credits

The value of carbon credits can vary depending on a number of factors, including the type of project that generates the credits, the market demand for credits, and the certification standard of the credits. Carbon credits are typically priced per metric ton of CO2 equivalent (CO2e), representing the amount of greenhouse gas emissions reduced or avoided by a particular project.

The value of carbon credits can range from a few cents per ton to over $20 per ton, with prices fluctuating based on market conditions and the quality of the credits. Some carbon credits are traded on carbon markets, such as the European Union Emissions Trading System (EU ETS) or the California Cap-and-Trade program, which can impact the price of the credits.

The value of carbon credits is often determined by the certification standard used to verify the credits. Standards such as the Gold Standard, Verified Carbon Standard (VCS), and Climate, Community and Biodiversity Standards (CCB Standards) are widely recognized and have higher market value due to their rigorous verification processes and environmental and social co-benefits.

In conclusion, though  carbon credits can generate financial returns for participating projects, the primary purpose of carbon credit programs is to incentivize emissions reductions and support the transition to a low-carbon economy


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