Strategies to Avoid Lower-Quality Carbon Credits

Avoiding cheaper credits

In many markets, “cheap” is often synonymous with “lower-quality.” Very cheap carbon credits can indeed be a sign of lower-quality, especially for newer projects. If a project is selling carbon credits for a price below US$1-2 per tonne (i.e., close to the transaction cost of getting a project developed, registered, and verified) then the case for additionality is probably weak; it can be hard to argue that the project truly depended on carbon credit revenue for its implementation. However, some carbon project types with high environmental integrity can avoid GHG emissions or enhance removals at relatively low cost (e.g., some types of industrial gas destruction).

The inverse argument – that higher prices correlate with higher quality – is not reliably true either. Truly additional crediting projects will have a higher intrinsic cost for avoided GHG emissions or enhanced removals and will therefore need to charge a higher price for carbon credits to be financially viable. However, there is nothing to prevent non-additional projects from also charging high prices, assuming they can find a gullible buyer. These projects may end up crowding out projects with higher actual costs.

Pros: Purchasing more expensive credits may mean a higher likelihood of additionality, as well as higher scores on other criteria like quantification, permanence, and avoidance of social and environmental harms.

Cons: Looking only for higher-priced carbon credits (without looking at other variables) is not a guarantee of higher quality.