Carbon pricing 101
We have a saying here at Cool Effect: “Do your best, and offset the rest.” We say it because offsets are not some silver bullet, they’re designed to help you reduce emissions you otherwise can’t through conventional climate actions.
Our friend Christiana Figueres said it well: “Done with integrity, with decent rules and accountability mechanisms, offsets can help companies and countries big and small on their journey to our net-zero future while supporting communities on the ground. What offsets are not, even with the highest degree of integrity, is a pass to continue emitting.”
And once an individual or organization makes the decision to turn to voluntary carbon markets in order to offset their emissions, one of the key pieces of information they look for is the actual price of carbon credits. With this information, individuals can decide if this is within their budget, and a company can decide how ambitious it can be when setting its emission reduction target and whether voluntary markets can help reach it.
But where do those costs come from? How exactly do you put a price on carbon? A good question — and it’s one that a lot of people are asking.
Carbon is an unregulated market and as such, pricing is often confusing. Without a centralized universal cost, the price of a carbon offset can vary greatly, based on the location of the carbon project generating the offset, the type of project, the age of the offsets themselves, and a few other additional factors like added fees.
When you’re dealing with carbon projects all around the world, you’re bound to run into some logistical differences. Projects located in countries with less developed infrastructure can sometimes generate additional logistical costs, and different regulatory restrictions in different parts of the world can also have an impact on the overall price of a carbon offset.
We’ve talked about this before, but there are a lot of different types of carbon projects out there — and while variety may be the spice of life, it tends to complicate things when attempting to put a universal price tag on projects. Our friends at the NRDC sum it up nicely:
Each carbon offset credit is associated with the emission reduction from a specific project. For example, in a forest management project, a landowner chooses to manage the land so as to increase the carbon that is sequestered relative to a projection of what would have occurred in the absence of the project, and then sell the offsets associated with the project. The money the landowner makes from selling the offsets is used to pay for the cost of implementing the project and maintaining it over time, providing a financial incentive to maintain the forest as opposed to cutting it down.
Essentially, no two carbon projects are the same, and those myriad differences have a tremendous impact on the price and quality of the carbon offsets associated with them.
The age of an offset, also known as its “vintage” can refer either to the year in which it was issued, or the year in which its associated GHG reduction occurred — for some projects, there can be quite a gap between those dates. Much like a fine wine, while vintage is helpful for understanding time frames and context, the vintage of an offset does not necessarily indicate anything about its quality. And much unlike a fine wine, the older the vintage the cheaper the price.
While not all carbon projects are created equally, the same — unfortunately — goes for carbon project intermediaries. While offset prices typically range from less than $1 to $45 per tonne of carbon dioxide equivalent (CO₂e), most prices for well managed and regularly verified carbon projects tend to be between $6 and $14 per tonne.
If a project sells for less than a few dollars per tonne it is hard to see how the sale of carbon credits can have a real impact on the project operations, so some additional research is recommended before making your purchase. For this reason, unless the reason for the low price is explicitly stated, we recommend some additional skepticism very cheap offsets
Prices can also vary because of added fees tacked on by some offset providers. While often those fees are unavoidable (payment processing fees, etc), it’s important that whoever you purchase carbon offsets from is open, honest, and above all, transparent when it comes to their pricing.
For instance, Cool Effect has a 9.87% fee which is included in our price per tonne. We do not mark the price up to the nearest dollar and we do not buy credits for a low price and resell them at a higher price.
The more transparent providers are when it comes to pricing, the better. As we said, carbon offsets aren’t a permission slip to pollute, they’re a useful tool for reducing otherwise irreducible emissions, and humanity needs all the tools it can use right now in the fight against climate change. Ensuring that voluntary markets have high integrity and clear pricing is a critical step toward a more universally agreed upon (and internationally regulated) carbon market.
We already know that if we are to achieve the success we seek and the reduction in emissions that the planet requires, it’s going to cost us. We created the Cool Effect model to help bring integrity and further transparency to the voluntary carbon market to help ensure that the costs we all pay are as fair, consistent, and trustworthy as possible.
There’s no price too big when it comes to saving the planet — the key is making sure we all can trust the prices.