The ABCs of Carbon Offsetting: Definitions of Common Terms in the Carbon Market
Cool Effect intends to promote the highest quality carbon offset (emission reduction) projects in the world under the Cool Effect program of Carbon Done Correctly. However, we are often asked, “What is the definition of “high quality”?
This is the most important term in the entire lexicon. Without additionality, a carbon project should not exist. According to the EDF and WWF, in the context of carbon credits, emission reductions or removals from a mitigation activity are additional if the mitigation activity would not have taken place in the absence of the added incentive/funding created by the sale of carbon credits.
Other terms reference specific kinds of tests or methods used to assess additionality, such as investment analysis, barrier analysis (technological and financial), evaluation as to whether the activity is common practice without the need for sale of offsets, or whether there is a legal requirement for the project to be implemented. Some people refer to these colloquially as different “kinds” of additionality (e.g., “investment additionality” or “legal additionality”). However, they are really just different ways to make an assessment and are frequently used together to reach a final determination about whether an activity is additional. The application of these tests is validated and verified by a third-party auditor.
Of course, projects that are not supported by carbon funding can still reduce GHG emissions, but they should not be used as ‘offsets’.
A contribution made by any AFOLU (Agriculture, Forestry, and Other Land Use) project made in tonnes during each credit issuance to the issuing registry. These tonnes are non-tradeable and are to be used to cover the risk of unforeseen losses in carbon stocks in the project portfolio. These tonnes will be used to replace any previously sold tonnes in the event of a reversal due to fire, pests, drought, or other events which can affect the permanence of the carbon sequestration inherent in the carbon credit sold.
The quantity of buffer pool credits is determined by a non-permanence risk analysis prepared by the project proponent and verified by a third-party auditor.
These units represent one metric ton of CO2 that has been reduced, avoided, eliminated, or sequestered from verified carbon projects, applying an approved methodology. Carbon credits are typically used to offset a buyer’s emissions (aka “carbon footprint”).
A woman in Peru grinds coffee beans farmed with the help of local community members who have been trained in sustainable forestry practices, reducing carbon emissions, and improving the lives of countless residents.
A carbon footprint is a measure of the quantified release of greenhouse gases (denominated in metric tonnes of CO2-equivalent — see below) reaching the atmosphere caused by an individual or entity’s activities. The largest portion of a footprint is typically (although not exclusively) produced through the burning of fossil fuels.
Carbon Standard or Carbon Crediting Program
An organization with a defined set of rules, regulations, reporting criteria, and methodologies is used to verify that carbon reduction projects are legitimate, effective, and are delivering on the environmental and community benefits they claim to be delivered. Some Standards used exclusively for carbon credit purchases include Gold Standard, Verified Carbon Standard, Climate Action Reserve, American Carbon Registry, and Plan Vivo.
Carbon Offset Registry
Online data systems that track the issuance, purchase, and ownership of each carbon credit. Registries record the ownership of credits because a serial number is assigned to each verified offset credit. When a credit is sold, the serial number for the reduction may be transferred from the account of the seller to an account for the buyer. If the buyer takes the credit in its account and “uses” the credit by claiming it as an offset against the buyer’s emissions, the registry retires the serial number so that the credit cannot be resold. Credits may also be bought by the Buyer and retired by the Seller on behalf of the buyer negating the need for a credit transfer. In this manner, registries reduce the risk of double counting.
Some buyers may wish to purchase and hold credits in their account for sale later. In this case, the registry tracks those actions too.
CO2 equivalent, or CO2e, is a metric measure used to compare emissions from various greenhouse gases on the basis of their GWP by converting amounts of other gases to the equivalent amount of CO2. This provides a standard unit for measuring carbon footprints of various gases as they relate to CO2. Most global warming gases are worse for the environment than CO2. For example, 1mt of methane emitted is equivalent to 25mt of CO2 emitted. So if you reduce a tonne of methane it is the equivalent of reducing 25mt of CO2. There are 5 other global warming gases that can be converted in this way.
A carbon marketplace that is driven by national, regional, or international law stating that companies and governments must account for and reduce their greenhouse gas emissions. The California Air Resources Board operates a compliance credit market that is used to ensure that California cost-effectively meets its goals for greenhouse gas emissions reductions.
An accounting entry applied in the context of Article 6 of the Paris Agreement to account for the International Transfer of Mitigation Outcomes (ITMOs) to avoid double counting of emission reductions or removals. A country transferring emission reductions or removals can no longer count that emission reduction toward its nationally determined contribution (NDC), and the country acquiring and using the emission reductions or removals can use it towards the achievement of its own NDC. In this way, emissions would be accurately counted. Corresponding Adjustments are also under consideration for use in the voluntary carbon markets but as of June 2021, only a handful of countries have implemented a process for this and their use is in question.
The emissions level against which emission reductions or removals of a mitigation activity are determined.
A situation in which the same emission reduction or removal is claimed by two different entities for achieving separate mitigation targets or goals, once by the country or jurisdiction where the emission reduction or removal occurs, by reporting lower emissions or higher removals when tracking progress and demonstrating achievement of its mitigation target or goal, and once by the entity using the carbon credit.
A situation in which a single greenhouse gas emission reduction or removal is counted more than once towards achieving mitigation targets or goals. Double counting can occur through double issuance, double use, and double claiming.
A gorgeous sunset over the largest carbon project in the world, protecting 157,000 hectares of land that is sustainably managed as a home to local communities and endangered animals.
A situation in which more than one carbon credit is issued for the same emission reduction or removal. Double issuance leads to double counting if more than one of these carbon credits is counted towards achieving mitigation targets or goals. Some programs and stakeholders also refer to double registration — the registration of the same project under two different carbon crediting programs or twice under the same program. Double registration can lead to double issuance if carbon crediting programs do not implement proper controls to ensure that, if a project is registered with more than one program, carbon credits are canceled by one program before carbon credits are issued by another program for the same emission reductions or removals.
A situation in which the same carbon credit is counted twice towards achieving mitigation targets or goals (e.g. if two entities claim emission reductions or removals from the cancellation of one carbon credit).
Ex-ante Carbon Credits
Carbon offsets that are issued for the projected volume of reductions/removal over the project’s lifetime. They are conservatively calculated. Ex-ante credits typically become ex-post credits after the credits have been monitored and verified for a specific time period.
Ex-post Carbon Credits
Carbon offsets are issued after rigorous monitoring and verification of offset projects for emissions reductions and avoidances that have already happened.
The net change of greenhouse gas emissions or removals that happen as a result of the project activity and occur outside the boundary of that activity. These include, for example, indirect emission changes upstream or downstream of the mitigation activity or rebound effects. A project saving the land from deforestation in one area may shift deforestation to another. Some projects may need to use large amounts of fossil fuels to implement the project. Leakage is estimated and a discount against the total issuance of credits is applied for that leakage. Leakage can be as high as 20% of a project’s issuances.
An activity that reduces anthropogenic emissions of greenhouse gas or maintains or enhances removals by carbon sinks (such as grasslands or forests). Mitigation activities can be implemented at different scales and could be projects, programmatic approaches, or policies.
Workers in Sichuan, China hard at work building biodigesters designed to mitigate methane emissions by converting harmful emissions into clean-burning energy for local villagers
Non-permanence refers to a situation where the emission reductions or removals generated by the mitigation activity are later reversed, for example, due to a natural disaster (fires, drought, pests) or project mismanagement. The mitigation activity may thus only result in a temporary greenhouse gas benefit for the atmosphere.
The vintage of an offset can refer either to the year in which it was issued, or the years in which its associated GHG reduction occurred — for some projects, there can be quite a gap between those dates. Projects can be monitored every year or they can be monitored once every several years and that will affect the vintage issued. While helpful for understanding time frames and context, the vintage of an offset credit does not necessarily indicate anything about its quality unless the project has undergone re-validation or the methodology for those credits has changed.
Permanent or Permanent Impact
One of the key principles of carbon offsets is that the sequestration of the carbon or avoidance of carbon is permanent. This is often addressed in project documentation in terms of the risk of reversal of the storage or avoidance of carbon. Fires, drought, pests can all have effects on carbon storage in natural climate solutions. Often a contribution is made to a (see above) “buffer pool” of credits that acts as an insurance policy against loss of permanence.
Permanence guarantees that the carbon reduction is ensured through the project’s survival for a minimum of 40 years but can also be 100 years or in perpetuity. This includes a carbon removal element (carbon credits), and other positive impacts on local flora, fauna, and the local population. Legally enforceable agreements are critical in such cases.
A carbon credit is “real” if it represents an actual net reduction or sequestration in emissions. The verification process must prove that the emission reduction does not take place because of artificial, incomplete, or inaccurate emissions accounting.
Results-Based Climate Finance
A financing approach under which a donor disburses funds for the achievement and independent verification of a pre-agreed set of results. Some donors use the delivery and subsequent cancellation of carbon credits as a vehicle to disburse results-based climate finance. In this case, the donor does not use the emission reductions or removals to achieve its own mitigation targets or goals (i.e., it does not use the carbon credits as offsets).
When a carbon credit is issued, it will be assigned a serial number. All carbon credits and their associated serial numbers are listed on a secure registry. When a carbon offset is sold, the credit is then retired so it cannot be traded, sold, or swapped again. The buyer will then receive a certificate of retirement that documents the credits and serial numbers. This ensures that only the purchaser of the carbon credit can claim the emission reduction. It also ensures that the buyer cannot claim they’ve reduced emissions and then re-sell the credit.
Also known as “metric tons,” this unit of weight is equal to 1,000 kilograms, or 2,205 pounds — this is the standard unit of measurement used when quantifying CO2 emissions.
As the name implies, these are carbon credits from carbon projects that have been certified by one of the major international carbon credit standards, such as The Gold Standard, Verra, or the Climate Action Reserve.
The voluntary market is the voluntary purchase of carbon credits by a company organization or individual. Cool Effect represents carbon credits to be used by the voluntary market.
We may not have written the book on carbon offsets, we’ve definitely written the book on Carbon Done Correctly, so we’re aware that knowing a few definitions is far from having a total understanding of an issue, especially one as complex and ever-changing as the world of carbon offsets. The terms above are key to driving increased offset transparency, carbon market accountability, and hopefully — increasing the number of people who understand the true value of carbon offsets’ place in the fight against climate change.
And the more people understand, the more likely they are to act.