We should really start to pay attention to our carbon credits. The effects of greenhouse gasses are felt today more than ever across the world. Because of this, both private businesses and governments have seen it necessary to curb the emission of greenhouse gasses.
And to do this, they’ve turned to putting a price on carbon emissions to manage climate change.
Understanding Carbon Pricing
Carbon pricing measures the cost and impact of greenhouse gases on the environment and the community. It includes property loss due to sea level rising or flooding, increased healthcare costs because of heat waves.
Even loss of income due to the destruction of crops is included. All these costs are then added up and connected to their sources through the price of carbon dioxide produced. Essentially, this pricing aims to hold parties or companies liable for greenhouse gas emissions.
Companies will then have the option to lower their carbon emissions or choose to pay for continued pollution of the environment. And one of the approaches that can help achieve environmental sustainability is carbon credits.
What Are Carbon Credits?
Also known as carbon allowances, the credits are a cap-and-trade system that limits how much carbon dioxide or other greenhouse gases can be emitted. There are three types of carbon credits, and these are:
- Removed emissions, which entails planting forests and carbon capture
- Lowering greenhouse emissions, which usually involves implementing energy efficiency protocols
- Avoided emissions, such as stopping deforestation of rainforests
Such kind of credits are only present in jurisdictions that follow the Cap & Trade system. They’re created by the governing body and assigned to businesses within the jurisdiction.
Essentially, a single credit is equivalent to 1 ton of carbon dioxide (CO2e) produced by an individual company. With that said, how much is a carbon credit price? To help you gain a better understanding of carbon credits, here are a few insights about carbon credit prices.
What Is the Price Of Carbon Credits?
Supply and demand forces and government policies generally drive carbon credit prices. This market consists of investors and companies looking to buy and sell carbon credits.
On average, the price for the credits ranges between USD$40 to USD$80 for each metric ton in 2022. This is a significant rise from USD$12.70 per metric ton in 2021.
The sharp increase in carbon credit prices resulted from increased demand, coming after the United Nations’ Paris Agreement which set objectives to lower greenhouse gas emissions. The set target for all countries was to reduce greenhouse gas emissions by 2030 by at least 26%.
The Paris Agreement also restricts the number of credits a country can buy yearly. Doing this helps give other countries a chance to participate in this fight towards lowering emissions and a more sustainable future. This means that some countries with surplus carbon credits can sell them to those without none.
Who Determines the Pricing of Carbon Credits?
The World Bank’s carbon credit price is set by the International Monetary Fund (IMF). The IMF uses additional carbon credits from various sources as a reference when determining the pricing.
But as mentioned, the price of the credits tends to fluctuate depending on market dynamics or credit supply and demand. It may also be affected by the carbon credit’s country of origin and government body.
Other factors also influence the price of carbon credits, such as the following:
- The price of natural gas and electricity, which are used in the making of carbon credit products
- The cost of oil and other items used in making carbon credit products
- The market’s demand for carbon credits
- The carbon credit supply in the market
- Project details, such as type, quality, size, and location
Furthermore, the age of the credits or their vintage factor can influence their pricing. Vintage refers to the year the credits got linked with reducing greenhouse gases or its year of issue. Generally, older vintages are cheaper, and they don’t have an expiration.
Why Should You Buy Carbon Credits?
Buying credits for your carbon is a viable project that any company or even individuals today should consider. For one, it is an environmentally conscious move that can help mitigate the widespread damage of pollution.
It can help lower the severity of adverse climate change by reducing the amount of greenhouse gases and preserving the environment.
Buying carbon credits can also provide businesses with an investment opportunity. This is due to the rise in the price of carbon credits over the last few years, a trend that’s likely to continue as more people become more aware and concerned about environmental sustainability in the years to come.
Furthermore, buying carbon credits can be a good way to boost a company’s image. This can be significant in showing your clients, investors, and the public how committed your business is to protect the environment, especially since more consumers are likely to do business with companies that promote sustainable efforts and practices.
How To Buy Carbon Credits?
As you take a step towards neutralizing carbon emissions and joining the fight against climate change, determine the current carbon footprint of your company. There are tools like online calculators that can aid you with this.
Once you’ve identified your carbon footprint, you can examine your results and know how your business operations affect the environment. From there, you can buy the credits.
To buy carbon credits, you can purchase directly from developers or organizers of the project you want to support. On the other hand, you can also work with brokers who can buy the credits on your behalf.
However, a disadvantage of this option is the need for more transparency in terms of carbon credit price and the broker’s fee.
Wrapping It Up
Buying carbon credits is a great approach for companies to lower their carbon footprint and help combat global warming. Generally, the price of carbon credits is influenced by supply and demand and other factors like the project type and location.
Hopefully, this post can guide you on how the credits work, how much you can expect to pay for them, and how your company can benefit from this approach.