Carbon Credits Explained

Scientists at the IPCC have shown that increased levels of GHG in the atmosphere are warming the planet. This creates extreme weather changes around the world. Currently, burning fossil fuels - coal, oil and gas – is the main driver of increased GHG levels.

Under the banner of the UN and Paris Agreement, the world's countries have come together to declare that urgent action must be taken to lower emissions if we are to maintain a habitable planet that can support the world's population.

The latest research emphasises that urgent action must be taken by everyone in order to safeguard some of the most vulnerable ecosystems and communities on the planet.

The current pledges and actions are falling short and the window to keep climate change in check is shrinking. We need to increase ambition and mobilise climate finance to lower greenhouse gas emissions drastically to reach internationally ratified targets such as the Paris Agreement and the Sustainable Development Goals (SDGs).

Beyond the moral drivers, it is becoming imperative for businesses to take action in order to continue their operations, for example building resilient supply chains and mitigating financial risks, or maintaining consumer trust. Moving capital towards climate-smart solutions opens doors to many opportunities and can be a long-term growth driver.

Carbon credits are measurable, verifiable emission reductions from certified climate action projects. These projects reduce, remove or avoid greenhouse gas (GHG) emissions. But they also bring a whole host of other positive benefits, for example, they empower communities, protect ecosystems, restore forests or reduce reliance on fossil fuels.

Projects must adhere to a rigorous set of criteria to pass verification by third-party agencies and a review by a panel of experts at a leading voluntary carbon market standard like Verra or Gold Standard.

After an organisation or an individual buys a carbon credit, the credit is permanently retired so it can't be reused.

The key is in the detail.

High-quality carbon credits adhere to a strict set of standards. You can check this by ensuring the projects you invest in are registered with a third-party internationally-recognised verification standard, such as the Gold Standard, Verra's Verified Carbon Standard (VCS), Social Carbon and Climate, Community and Biodiversity Standards (CCBS), or standards verified by the UNFCCC.

The ICROA-approved verification standards all South Pole's projects adhere to ensure that the project is permanent and additional to what could happen without the project being in place.

These standards also highlight additional benefits beyond carbon – all South Pole projects contribute to at least 3 of the UN's Sustainable Development Goals. This could be improving health, creating better education opportunities, improving wildlife conservation or even building sustainable communities.

ICROA-approved carbon standards ensure that the project is real, verified, permanent and additional by setting stringent requirements that must be followed for a project to issue carbon credits. Project impacts are then audited by approved-third parties and the documents demonstrating this are available on public registries.

For extra transparency and to prevent any double counting, carbon credits are assigned serial numbers and are issued, transferred and permanently retired in publicly accessible emission registries.

This can often be the trickiest part of carbon compensation (or carbon offsetting) to understand, but theoretically it's simple.

Additionality means that the reductions in emissions achieved by the project must be “above business as usual". That means they would not have happened unless the project was implemented.

By purchasing carbon credits you are directly funding action that moves the dial on climate change mitigation, today.

Rising CO ₂ levels is an international problem; there are no borders in the atmosphere. So, it does not matter where the project you are buying carbon credits from is located.

Many of our projects operate in less economically developed countries, as there we are often able to create a bigger impact for the local community thanks to co-benefits and extra activities.

For example, forest protection projects can achieve their primary aim of protecting vast expanses of forest and cutting emissions by supporting rural livelihoods through training opportunities, alternative income streams and access to safe water and healthcare.

Projects reduce or remove the amount of greenhouse gas (GHG) in the atmosphere in at least one of three ways.

• The first avoids greenhouse gas emissions, for example, by replacing fossil fuel-derived energy with energy from renewable sources.
• The second removes emissions from the atmosphere, for example, by planting more trees, which sequester - or capture - carbon from the atmosphere and store it in liquid or solid form.
• The third captures and destroys emissions, for example, by capturing methane–a GHG many times more potent than carbon dioxide–from wastewater.

South Pole has hundreds of different types of climate action projects, which cover the following areas:

Nature-based-solutions

including: reforestation, land restoration, forest protection, sustainable land management and agriculture.

Renewable energy

including: Hydropower projects, wind projects, solar power and geothermal.

Community projects

including: improved cookstove technology, access to safe water.

Waste-to-energy

– including: biogas from landfill and industry and biomass.

You can see a selection of South Pole's climate protection projects here.

Carbon removal projects, as the name suggests, remove carbon from the atmosphere. Broadly speaking, they are split into 2 categories: natural carbon removals, like tree planting which sequesters carbon as the trees grow, and technological carbon removals, for example, direct air capture. Find out more about our carbon removals solutions here.

Carbon avoidance projects contribute to climate action by preventing carbon that would have been released into the atmosphere. This could be building a wind farm to lower reliance on fossil fuels, repairing boreholes to replace the need for purifying water by boiling it on open fires and preventing deforestation.

In the short-term, emitting and then removing carbon from the atmosphere creates greater uncertainty and risk than simply avoiding its release in the first place.

Financing carbon avoidance today is crucial in the transition phase to net zero emissions because simply put, they stop more emissions from entering the atmosphere.

They also serve climate justice and protect our existing carbon sinks such as forests and with them, biodiversity.

In the coming decades, carbon removals will grow in importance as we get closer to both public and private net zero targets. Once we reach net zero, all new residual emissions must be neutralised with carbon removals.

Companies can start to invest in carbon removal technologies so they can be scaled in the future. However, this must not delay or impact urgent efforts to decarbonise and prevent emissions from being released in the first place.

There are a number of reasons prices of carbon credits vary, for instance:

• the value projects deliver beyond carbon, for example some projects empower women or have direct impacts on people's lives;
• varying implementation costs depending on the size and location of a project;
• similarly some types of technology are more expensive than others;
• carbon pricing regulations can affect prices in the voluntary carbon markets too;
• finally, prices are driven to a large extent by supply and demand.

The SBTi, among others, explicitly encourages companies to not only reduce their own footprint but also invest in activities outside of their value chain in the transformation to net zero because of the urgent need to move the dial on climate change mitigation, today.

Carbon credits are a transparent, measurable and results-based way for companies to support activities, such as protecting and restoring irrecoverable natural carbon sinks, like forests or marine ecosystems and scaling nascent carbon removal technology, that keep global climate goals within reach.

Compensating remaining emissions through carbon projects:

• catalyses faster climate action on the way to net zero,
• ensures companies are measuring their footprint and putting a price on the damage they are creating,
• attracts funding to eligible and deserving projects that dramatically reduce emissions and facilitate sustainable development.

Carbon credits fund vital planet-saving activities in areas that most need it, reducing emissions, right now. However, they are not a quick fix or licence to continue practices that damage the environment.

Businesses must develop a broad sustainability strategy that focuses on reducing their absolute emissions.

Read about our approach to high-impact climate action.

For 17 years, South Pole has been engaged in carbon markets. Our expertise spans stakeholder management, advising on emission reduction activities and preparing technical documentation for a project to generate carbon credits under the leading global carbon standards.

Through our global network, we connect certified projects run by our local partners with climate conscious organisations looking to tackle their carbon footprint.

Our project implementation partners include NGOs, Indigenous community groups, landowners and private organisations who need carbon finance to fund their planet-saving activities.

Of the final sales revenue, a substantial portion goes directly to the project so it can implement the climate protecting activities.

A smaller portion is paid for the registration and regular auditing process, carbon registry fees, and South Pole's own time and investment. All of these steps are crucial in ensuring the integrity of carbon credits and in helping the project owner access carbon finance.

Our team both develops and retails carbon credits. This means that most of our carbon credits are sourced directly from the project, rather than via brokers. This cuts out the middle-men so the maximum amount of investment goes directly into the project activities.

As one of the largest global project developers, we have developed over 1000 climate action projects in renewables, forestry, agriculture, industry, households and public institutions, spanning the globe.

With our clients' and partner's support, we have supported millions of people around the globe, saved over 180 million tonnes of CO2, enabled the production of more than 140,000 GWh of renewable energy, protected or restored over a million hectares of land and helped create more than 100,000 jobs! Find out more here.