Carbon Credit Exchange Additionality

Carbon Credit

Carbon credits are often used to reduce a company’s emissions, but not all credits are created equal. Credits that fail to prove additionality, or that don’t go beyond business as usual, have no climate benefit and can actually make things worse. Credits with questionable additionality are known as greenwashing and can put companies at risk of being called out by NGOs or the media.

A credit’s additionality is determined by whether it would have happened without the revenue from selling carbon credits. Each project is unique, but some generalized assumptions are common in the market – for example, that projects in the ARR (afforestation, reforestation and revegetation) category have high additionality due to their ability to remove carbon from the air. However, a growing number of these projects have failed to meet additionality criteria. A credit must be able to demonstrate that the reduction in GHG emissions is greater than what could have been achieved without the project.

In the past voluntary and offset carbon credit exchange markets, many projects have failed to pass this test. For example, forests that were funded by these markets grew to store carbon, but would have grown anyway – and they did not result in any net reduction in carbon emissions.

Carbon Credit Exchange Additionality

One way to address this issue is for carbon markets to move away from funding individual, project-based activities and toward paying entire firms to change their emissions levels. It is much easier to verify emission reductions and additionality at the company-level. For instance, energy models that predict industry emissions with and without regulation can also be used to judge what a firm would have done with regulations in place – and it should be easy to determine how much of an impact a new mitigation strategy has.

To ensure that companies are not wasting money purchasing greenwashing credits, they should be able to use these model-based verification methods to assess the additionality of their own mitigation projects and those being offered in the marketplace. In addition, they should be required to report their annual emissions, and require that the companies they do business with are required to do the same. Measuring company-level emissions is relatively inexpensive and will help to drive efficient mitigation.

Taking these measures will help to avoid the type of greenwashing that has tarnished the reputations of the voluntary and offset markets in the past. This is a crucial step towards the future of a global carbon market that works.

Creating quality credits that reduce GHG emissions will not be possible unless there is a clear understanding of additionality. Buying non-additional credits can make climate change even worse and undermine the ability to reach net zero. Understanding these red flags is essential for developing a comprehensive offsetting strategy and moving toward net zero. To learn more about additionality and other key aspects of a comprehensive mitigation plan, request our whitepaper. Click below to download it now.