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Why use carbon credits?

According to the Intergovernmental Panel on Climate Change (IPCC), the world has until 2030 to cut human-caused carbon dioxide (CO₂) emissions in half (and cut other greenhouse gas emissions considerably) to maintain a 50% chance of avoiding the worst effects of climate change.[1] By 2050, CO₂ emissions will need to reach “net zero” – where emissions are in balance with removals[2] – to sustain this chance. Such mitigation will require worldwide action by national and local governments, along with businesses and civil society.

Description: Global total net CO₂ and non-CO₂ emissions. Source: IPCC, 2018: Summary for Policymakers.

The urgency is clear: incremental steps to address GHG emissions will not be enough. Companies and organizations will need to use every tool at their disposal to achieve ambitious mitigation targets.

“Carbon credits” are one such tool that – if used responsibly – can accelerate action to avert dangerous climate change.

In addition to corporate applications, this guide may also be useful for individuals interested in using carbon credits to compensate for their personal emissions or as an educational resource for technical experts in academia and government. Further, this guide explains the role that purchases of other environmental commodities, like renewable energy certificates (RECs) and emission allowances, can serve in claiming avoided GHG emissions or enhanced removals.

Avoided emissions: nomenclature

Carbon credit market actors sometimes ambiguously distinguish between emission reductions, avoided emissions, and emissions destruction. For example, projects that install abatement equipment at nitric acid plants are said to “reduce” N₂O emissions from nitric acid production; projects that prevent deforestation are said to “avoid” emissions that would have occurred from deforestation; and methane capture projects are said to “destroy” methane (CH₄) through combustion. From a GHG accounting perspective, however, these distinctions are arbitrary. In all cases, the outcome is that an intervention is claimed to have avoided the release of GHG emissions to the atmosphere that would have occurred under the baseline scenario (i.e., without the intervention).[3] Therefore, this guide utilizes the general term “avoided emissions.”

Although appealing, the term “emission reduction” suffers from the problem that it used both to refer to intervention impacts at a given time (e.g., the change in emissions in the project scenario relative to the baseline scenario) as well decreases in GHG emission inventories over a time series (e.g., a company’s reported emissions in 2024 are lower than they were in 2023). It is good practice when referring to emission reductions to be explicit as to what the reduction is measured relative to (i.e., what is the change in reference to).

[1] Under the Paris Agreement, the international community has established a goal of limiting global warming to “well below 2°C” by the 2100, and to pursue efforts to limit warming to 1.5°C. In a 2018 report, the IPCC summarized current modeling of what will be required to achieve the latter goal, noting that very substantial CO₂ reductions will be required by 2030. See: IPCC (2018).

[2] CO₂ can be removed from the atmosphere through natural sequestration (e.g., in trees, soils, or the ocean) or through artificial means (e.g., using direct- air capture technologies, which are still in their infancy).

[3] Some actors even maintain that reduction or removal activities are more credible for offsetting than activities that “avoid” emissions – since “avoidance” often means the continuation of the prior activity or behavior. This is not inherently true; what matters for credibility is how certain the baseline is and whether the activity is additional.