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Carbon credits explained
10 August 2022

Carbon credits explained

5 minute read
Corporate climate action Net zero
Emily Sharples Senior Solutions Marketing Specialist
Amandine Lacordaire Senior Climate Solutions Manager

Making sure there are no net emissions in the atmosphere by 2050 is, the latest climate science argues, essential to putting the world on track to avoid the worst effects of climate breakdown.

From disastrous floods sweeping away homes to crippling heat-waves that put the most vulnerable at risk, we're already seeing devastating change: crop failures are threatening our food supply, while the loss of biodiversity is severe enough to be labelled the sixth mass extinction.

To achieve striving ecosystems and protect livelihoods on a global level, we have to attack the problem from two ends: dramatically decrease emissions while taking responsibility for those emissions that cannot yet be reduced. How can businesses support this goal today with measurable, meaningful actions? Financing projects that avoid or remove emissions, protect nature and support sustainable development is a powerful tool in any organisation's sustainability tool box. This is where carbon credits come in.

Why should companies compensate for their emissions, today?

Companies have now grasped the urgency of the climate crisis and the opportunity that action brings. Still, the number of commitments they're making to achieve climate neutrality or net zero is still low according to new research, and the pool of companies with a robust reduction target and clear strategy to get there is even smaller. This is not enough: time is running out and we need urgent action to avoid and reduce emissions globally. Right now. It's also true that any company operating today, even those most ambitious in their efforts to decarbonise, are left with unavoidable emissions, and many have a role, direct or indirect, in social or environmental damage.

Carbon credits are a preferred solution for companies to address these unavoidable emissions and demonstrate maximum climate action. They finance measurable impacts that are certified by credible and independent standards. Consequently, carbon credits have become an essential part of a holistic climate strategy that demonstrates maximum climate action by supporting mitigation and sustainable development beyond companies' value chains*. By purchasing carbon credits a company is putting a price on their carbon footprint. This makes carbon credits an effective decision making tool for financing climate action. With prices of carbon credits predicted to rise in the long term, it makes increasing economic sense for companies to focus on reductions first, meaning only truly unavoidable emissions are compensated for through investing in high-quality projects.

*Beyond-value-chain mitigation represents efforts to reduce carbon emissions that are outside a company's scope 1, 2 & 3 emissions, i.e. outside of its operational control.

How do carbon credits work?

As climate change is a global issue, climate action projects can operate anywhere in the world. They range from protecting threatened forests to providing clean cooking solutions and supporting renewable energy infrastructure. Certified projects generate “carbon credits" for the amount of emissions they reduce or remove: each carbon credit represents the avoidance or removal of one metric tonne of carbon dioxide equivalent (1 tCO2e) from the atmosphere and each has a unique serial number, which is stored on a public registry.

Once a company buys a carbon credit, it is retired within this registry to ensure that it can only be claimed once. By buying these credits, companies can take responsibility for their emissions while financing projects that could not otherwise happen and which contribute to the UN's Sustainable Development Goals. Certification from internationally recognised carbon standards provides assurance that the carbon credits generated from South Pole's portfolio of projects create the positive environmental and social impacts that they set out to achieve.

How do I select which climate action projects to support?

It's common for companies to purchase carbon credits from projects close to their operations where 'close' might mean geographically or relevant to their sector. A consumer goods company, for example, might support a waste handling project or a community-based project. Equally, a food company might finance a project that supports sustainable agricultural practices or clean cookstoves.

By supporting climate action projects, companies address more directly the impacts they create beyond the reach of their value chains. There are a number of different project types available, all of which help to drive the global transition to a low-carbon world.

What activities are eligible to generate carbon credits?

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A selection of transformative planet-protecting activities that can be financed through carbon credits.

The main thing to remember when selecting the climate action projects you'll support is that you should only buy carbon credits from projects certified under leading carbon standards, such as those approved under the International Carbon Reduction and Offsetting Alliance (ICROA). ICROA ensures the whole carbon credit system is transparent and credible; the carbon standards provide the framework for methodologies to calculate project impacts and they enforce the requirements for third-party verification and regular monitoring of project progress. ICROA-approved standards also require projects to provide evidence that they are additional, real, measurable and permanent.


Spotlight: Nature-based carbon projects

We rely on the natural world for everything from clean air and water to the materials we use to build our homes and the medicine that we use to treat the sick. Natural ecosystems play a crucial role in climate stability, storing vast reserves of carbon. The destruction of nature and climate breakdown are linked and compounding.
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​Moving towards climate leadership together

At South Pole, we work with companies to transform ambition into action, with measurable, positive impacts on the environment and the bottom line. We design solutions with the big picture in mind, leveraging our deep climate expertise in the interrelation of challenges, opportunities and solutions in order to help companies take meaningful climate action.

Start your climate action today
Start your climate action today

By using carbon credits to compensate for your unavoidable emissions, you can contribute to high-impact climate action around the world. Contact us to discuss your tailormade strategy and quotation.


Spotlight: Nature-based carbon projects

We rely on the natural world for everything from clean air and water to the materials we use to build our homes and the medicine that we use to treat the sick. Natural ecosystems play a crucial role in climate stability, storing vast reserves of carbon. The destruction of nature and climate breakdown are linked and compounding.

Nature-based solutions address the impacts of climate change, such as food security, access to clean water, human health, disaster risk, and social and economic development, by protecting, managing, and restoring natural ecosystems. Supporting nature-based carbon projects as part of a climate strategy helps to deliver broad climate benefits quickly and at scale. Different project types can reduce and remove carbon from the atmosphere, while providing cascading benefits to the surrounding ecosystems and communities.

Nature-based solutions in action: the Alto Huayabamba Conservation, Peru

The project protects over 53,000 hectares within a corridor of two distinct ecoregions of significant global importance: the tropical Andes on the eastern foothills and the Great Wild Area of the Amazon in the lowland areas of the Amazonian Andes. Investments in the project, through carbon credits, go towards kickstarting sustainable activities that empower the local communities to move away from practices that damage the environment, like small-scale land clearing for agriculture and cattle ranching.

View over the Alto Huayabamba project which protects two distinct ecosystems that are home to numerous threatened and endangered species, such as the critically endangered yellow-tailed woolly monkey (Lagothrix flavicauda) of which there are just 1,000-10,000 adults left in the wild. (Credit: Marco Gutiérrez | AMPA)

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