What is a Carbon Credit?

Carbon Credit FAQs

What is a carbon credit?

A Carbon Credit (also known as a carbon offset) represents one metric ton of CO2e emissions avoided from an emission reduction project. Carbon Credits can be used to offset carbon emissions generated by governments, organizations or individuals.

How is a carbon credit generated?

A carbon credit has to prove the concept of additionality. Additionality addresses the question of whether the project (for example a CLP windfarm) would have been commercially viable, and therefore built, without revenue support from sale of carbon credits during project operation. Projects that yield strong financial returns even in the absence of revenue from carbon credits, or that are compelled by regulations, or that represent common practice in an industry, are usually not considered additional.

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How is a Carbon Credit different from a Renewable Energy Certificate?

You can offset your carbon emissions by purchasing both Carbon Credits and Renewable Energy Certificates (RECs), but they are different types of products

Carbon Credits Renewable Energy Certificates (RECs)
What are they? A Carbon Credit represents one metric ton of CO2e emissions avoided from an emission reduction project. A REC represents the renewable component of one kilowatt hour (kWh) of electricity generated from an acceptable or predefined clean, renewable source. RECs do not represent the electricity itself – the electricity is considered a different product.
Where do they come from? Carbon Credits can be from any registered emissions reduction projects, such as emissions reduction at landfills, reforestation or renewable electricity projects. RECs are from renewable electricity projects only.
What are they used for? When you purchase a Carbon Credit, you can offset your emissions not only generated from electricity consumption, but also from any other activities that generate emissions such as air travel, commuting or events. When you purchase a REC, you can claim the renewable benefits for an equivalent amount of your conventional electricity use.
What is the regulatory arrangement? Carbon Credits are issued by globally recognized carbon credit registries, the most well-known of which are the Clean Development Mechanism (CDM) and the Verified Carbon Standard (VCS). Carbon Credits can be traded on either mandatory or voluntary markets. For more information on Carbon Credit registries and markets, please refer to the FAQs below. Rules and regulations for RECs vary by region and country. They can be developed and enforced by regional governments, national governments or various regulatory bodies, depending on the country and jurisdiction.

What are carbon credit markets?

Carbon markets can be either mandatory or voluntary. The compliance carbon offset market is a legally-binding mandatory emission trading scheme. Several regional and national schemes exist, the most well-known of which is the EU ETS in Europe, established under the Kyoto Protocol linked to the United Nations Framework on Climate Change (UNFCCC). If the customer is purchasing credits to satisfy the requirements of a compliance regime, the rules relating to that specific compliance regime would apply. The customer would be responsible for ensuring his/her purchase is in compliance with the regime that applies to his/her business or organisation.

The voluntary market operates outside the compliance market and enables companies and individuals to purchase carbon credits on a voluntary basis to satisfy personal or corporate social responsibility objectives. If the credit purchase is for voluntary purposes, there are no special rules relating to international transactions beyond those which would apply for any other international transaction.

What types of carbon credits are there and what types does CLP have?

CER (Certified Emission Reductions)

CER is the name of the credit issued by the Clean Development Mechanism (CDM) and represents a reduction of one metric ton of CO2e. The CDM was created by the Kyoto Protocol. It allows a developed country with an emission-reduction or emission-limitation commitment under the Protocol to implement emission reduction projects in a developing country. CDM provides a process for registering projects in developing countries and issuing credits from those projects and are valid for use in the EU ETS and for Kyoto Protocol commitments. Here is a link to the CDM registry . Since these credits are also generated through an internationally recognized process, they are also sold in the voluntary carbon market because buyers trust their legitimacy.

CLP has a significant number of legacy CERs in China and India, however only CERs from India are available on the platform.

VER (Verified Emission Reduction) / VCU (Verified Carbon Units)

VER is the name of the credit issued by the Verified Carbon Standard (VCS) and represents a reduction of one metric ton of CO2e. The VCS is a robust, global standard for approval of credible voluntary carbon credits. VCS is currently the most widely known and chosen voluntary standard. In order for a project to qualify for VCS, abatement must have occurred, must be additional beyond business-as-usual activities, must be measurable, must be permanent and the findings must be independently verified. VCS is also compatible with the CDM. Here is a link to the VCS registry .

CLP has a significant number of VERs in India and is actively issuing them for sale to wholesale customers and they are available on the platform.

The Gold Standard - CER Gold / VER Gold credits

CER and VER credits can be “upgraded” to CER Gold credits and VER Gold credits if they satisfy the requirements of the Gold Standard. This Standard was designed to ensure that projects issuing carbon credits are not only real and verifiable but that they make a net-positive contribution to the economic, environmental and social welfare of the local population that host them.

CLP currently does not have any CER Gold or VER Gold credits in stock and therefore none are available on the platform.

CCER (Chinese Certified Emission Reduction)

CCER is the offset mechanism, similar to CER, valid for trading in the China Emission Trading Scheme (China ETS) and represents a reduction of one metric ton of CO2e.

The project registration and credit issuance of CCER was temporarily suspended in 2017. New national measures for CCER will be announced by the Government.

How do you register a renewable energy project?

In order for a renewable energy project to be eligible to issue credits, it first must be registered. Registration is usually done at the time of commissioning and is valid for 7 - 10 years. The registration process includes:

  • Development of a Project Design Document (PDD) which describes the project in detail; and
  • Independent audit of the PDD and validation of the project.

How do you issue a Carbon Credit?

In order for carbon credits to be issued, a registered project must retain an independent carbon credit auditor to:

  • Confirm quantum of electricity sent out to the grid (A);
  • Confirm correct grid intensity metric (B); and
  • Confirm correct calculation of quantum of carbon credits (A) X (B).