The purchase of high-quality carbon credits is a great option to help contribute towards a low carbon, climate safe world. It can be a bit complicated when you try to answer what appears to be an easy question “How can I spend for carbon credits?” What makes an individual carbon credit less expensive the other? Isn’t each carbon credit one ton of carbon dioxide that is that is prevented from entering the atmosphere? We’d like to give some clarity on the way carbon credits can be evaluated considering the significant variations between the projects which issue carbon credits.
First, let’s define value. It is the Natural Capital Protocol provides a an excellent foundation for its various aspects:
Value (noun) is the importance of, value, or utility of something.
Market value is the amount of something that can be purchased or sold on a market.
Price is the amount of money to be expected, required or offered as payment for something (normally needing the presence of market).
Economic value: The significance of, value, or utility of something for people which includes the entire range of market as well as non-market-based values. More technical, it is the amount of preferences that individuals have for a particular amount of the product or service. Economic value is usually defined as increments or marginal variations in the availability of an item or service employing money as the measure (e.g. $/unit).
As the environmental markets, like the voluntary carbon market develop and expand, they could be a part of different methods of pricing their assets, such as carbon credits.
Pricing is based on market dynamic:
The market for carbon today is driven by demand and supply regardless of any implications to the plan regarding its long-term viability.
Markets are extremely effective in promoting competition and reducing the expense of achieving an aim. But what happens if that goal is security for our climate , and ensuring access to human rights that are fundamental like water, food and education, as well as good health? The cost of carbon credits at prices that are lower than the cost of maintaining the project can mean that projects could cease to operate within the communities they serve. Additionally, failing to fully consider the true benefits they provide beyond carbon benefits for development can lead to the race to the bottom, which means that the most reputable projects may end up being the first ones to be unable to succeed.
Gold Standard believes that organisations and individuals are able to think about the long-term social and environmental impacts of their investment decisions and evaluate both the cost and the true value of projects’ outcomes.
Pricing is based upon project costs:
A cost-based model is one that takes into consideration the cost of implementation for projects and is utilized to aid in ensuring the continual success of projects. This model, known as the Fairtrade Minimum Pricing Model (Figure 1.) is an illustration of how it works in the real world. It calculates a minimum amount which ensures that the costs of projects are paid for, with the additional “Fairtrade Premium” added on top of that which goes directly into the local population to finance activities that will aid them in adapting and becoming more resilient to a changing climate.
Fairtrade Minimum prices for all projects that are eligible:
Energy Efficiency Energy Efficiency 8.20EUR/tCO2e + 1 EUR Fairtrade premium
Renewable Energy Renewable Energy 8.10EUR/tCO2e + 1 EUR Fairtrade premium
Forest Management- 13EUR/tCO2e + 1EUR Fairtrade premium
A cost-based model is an important method to ensure sustainability for projects however, it doesn’t specifically reflect the added benefit these projects bring to sustainable development.
Pricing when it comes to trade carbon credits is based upon the value that was of the product:
Although every Gold Standard-certified project plays crucial roles in the transition to an economy that is low carbon Our projects also exceed the carbon reduction. Utilizing a value-driven approach to determine the price of carbon credits, you can take into account the entire economic, social and environmental impact of a project. That means both emission reductions and the added benefits to development that could transform lives.
The United States Environmental Protection Agency (EPA) published an update of its report the year 2015 to calculate the cost of carbon for society. Figure 2 summarizes the costs over time, based on different assumptions and risks in climate science. This means that for each ton of carbon dioxide released in the atmosphere, you pay between $11 and $212 for environmental damage as well as negative social consequences. According to theory, this costs should be included when calculating the cost of carbon credits.
To go further and shine a spotlight on the value of our projects that is above and over carbon reduction, Gold Standard commissioned economists to carry out a thorough assessment of the socioeconomic benefits generated through our projects. The results showed that projects that comply with safeguards, work with local stakeholders, and offer the development benefits that go beyond climate change generate shared value of hundreds of billions (US equivalent) dollars. The economic worth from Gold Standard project impacts per tonnes of CO2 can be shown in Figure 3.
The prices in the voluntary carbon market reflect certain “economic values” principles. For example, the costs on community clean cooking stoves that typically provide vital health benefits for children and women typically are more expensive than, say large-scale renewable energy projects. But ultimately, they are subject to the market forces of supply and demand without any safeguards, such as an absolute price. This is the reason there’s a huge difference between the historical average price of carbon credits to the economic the benefits they bring as shown in Figure 3.
The Gold Standard’s holistic standard, Gold Standard for the Global Goals, aims to resolve this gap by more precisely quantifying the carbon-free benefits of the other sources in a consistent and comparable manner. In between, we call the those who purchase carbon credits to better understand the full scope of value creation facilitated by these initiatives.
There is an increasing awareness within the business community about the real worth of natural capital, such as a stable climate and flourishing ecosystems, as well as advancements in social measures such as better quality of life and equality between women and men. In particular, the climate. Swiss retailer Coop has set their internal cost for carbon emission at CHF 150 (roughly USD $150) to increase innovation and invest in the Gold Standard-certified emission reduction initiatives that also benefit communities that are part of their supply chain. Microsoft requires their departments to have the budget line item that represents the costs of their carbon emissions. This results in the carbon cost that they deposit into the carbon investment fund that generates new funds for sustainable initiatives. These include internal emissions reduction initiatives in addition to funding projects outside of their operation by purchasing carbon credits.
Recommendations
When it comes to deciding which initiative to fund and in what much you’ll pay for it is similar to dealing with the market for real estate. There are several different factors to consider, ranging from the quality, size, type and area. Although ‘value’ is slightly subjective, based on the ideals of your company’s needs and goals, and is dependent on the forces of demand and supply, Gold Standard advocates for prices of carbon credits to better reflect the real social costs of carbon as well as the economic value it brings in the additional effects, while utilizing the market’s power to provide this service efficiently and cost-effectively.
