We’re all working toward reducing our carbon footprint and ushering in a cleaner future. But how can you take meaningful steps to reduce your carbon emissions? Purchasing carbon offsets or carbon credits allows you to reduce your emissions by funding sustainability projects around the world that avoid or capture dangerous greenhouse gas (GHG) emissions and further the transition to a green economy.
Keep reading to learn more about the differences between carbon offsets and carbon credits. You’ll also learn how Power Wizard can help you make the best decision for your energy needs.
Table of Contents
Carbon Credits vs Carbon Offsets: How Are They Different?
Comparing and Contrasting Carbon Markets
How Do Carbon Offset Programs and Credits Reduce Greenhouse Gases?
Which Type of Carbon Emission Reduction Do You Need?
Carbon Credits vs Carbon Offsets: How Are They Different?
Carbon offsets and carbon credits both aim to reduce carbon emissions. However, there are a few key differences. Depending on your unique situation, you may benefit more from one or the other or a mix of both.
Carbon Offsetting
Purchasing carbon offsets funds sustainability projects that compensate for your GHG emissions by reducing, avoiding, or capturing carbon from the atmosphere. These projects, ranging from renewable energy to forest conservation, offer a host of environmental benefits. Because GHGs like carbon dioxide and methane travel freely in the atmosphere, these projects may be implemented anywhere in the world, but most of them occur in developing countries. Nonetheless, when it comes to reducing atmospheric GHGs, the act of doing it is much more important than its location.
Carbon offsetting can be especially cost-effective in places like Texas, where there are ample opportunities for wind farms and solar power. Purchasing renewable energy is a great way to offset your carbon emissions. Texas is also on its own power grid, and there are many green electricity options to choose from. Use Power Wizard’s DIY shopping tool to make informed decisions and save money on your renewable energy.
Carbon Credits
Like carbon offsets, carbon credits are created through projects that reduce, avoid, or capture harmful GHG emissions. However, the two differ in what they represent and how they are used. While carbon offsetting involves removing carbon from the atmosphere, carbon credits represent the right of a company to emit carbon up to a certain limit. One carbon credit allows a holder to emit one ton of carbon into the atmosphere. These “pollution permits” are often part of a broader carbon market subject to emissions regulations, like a cap and trade program.
In cap and trade programs, GHG emissions are capped at a certain limit. Companies are allotted carbon credits that allow them to emit GHGs up to that limit. Credits can be sold, bought, and traded in a carbon market to help companies reach their emissions reduction goals. As regulations become stricter and the credits become more scarce, companies become incentivized to move away from fossil fuels.
Comparing and Contrasting Carbon Markets
Carbon markets are systems that seek to reduce GHG emissions by pricing carbon and selling offsets or credits. Currently, two types of carbon markets exist — regulatory compliance markets and voluntary markets. While there are similarities between the two, there are a few key differences as well:
- Regulatory compliance markets are set up to ensure that companies and governments are held accountable for their GHG emissions, often in the form of a cap and trade program. These markets are regulated by local, state, or national law. Strict certification requirements ensure that you’re receiving high-quality carbon credits.
- Voluntary markets aren’t subject to the same regulations and credits and offsets are often sold only in the private sector.
Credits Market
Carbon credits are often used in programs like cap and trade, where GHG emissions are strictly regulated and tradable credits are finite. These credits, called certified emissions reduction (CER) in regulatory compliance markets, are created through projects that reduce or avoid GHG emissions and are certified by a third-party organization.
If a company meets its emissions requirements and has credits left over, it can save them for later or trade them to a company that still needs to reduce emissions. Once a carbon credit is used, it’s retired forever.
Voluntary emissions reduction (VER) credits aren’t regulated and don’t require certification. VER credits can be purchased over the counter by both companies and individuals. You can trade them as well. However, unless specified, VER credits can’t be used to meet requirements set forth by regulatory compliance markets.
One of the benefits of carbon credits in a regulatory compliance market is that emissions are often lowered at a faster rate. Over time, emissions regulations become stricter, and the number of allotted carbon credits becomes lower. By creating scarcity in the market, the price of carbon credit can increase, incentivizing further reduction of emissions and development of green technologies.
Carbon Offset Market
Carbon offsets are primarily sold in voluntary markets. You can purchase them directly from a carbon offset project, a carbon fund, or a company. For example, an airline may offer to sell you carbon offsets to reduce your emissions associated with air travel. Voluntary offsets can also be purchased by companies for corporate social responsibility.
Voluntary offset markets are beneficial for several reasons. Because they aren’t heavily regulated, they are more accessible to consumers. They also provide ways for regulated companies to reduce their emissions beyond current requirements. Finally, voluntary carbon offsets can fund a wider range of projects that would otherwise not meet the requirements of regulatory compliance markets.
Though a lack of regulation in voluntary carbon offset markets may offer some benefits, it also means that some offset projects have a low environmental impact and do little in the way of reducing emissions. To increase the credibility of voluntary markets some offset programs have created criteria to monitor emissions and environmental impact.
How Do Carbon Offset Programs and Credits Reduce Greenhouse Gases?
Carbon offsets and carbon credits are both great options to help you reach your net-zero emissions climate goals — the point at which carbon output is equal to the amount removed from the atmosphere.
By purchasing a carbon offset, you’re paying someone else to reduce their emissions on your behalf, removing carbon from the atmosphere, or avoiding emissions altogether. If you choose this option, your GHG emissions are “offset” by an emissions reduction somewhere else. For a smaller company or a private citizen looking for ways to lower your carbon footprint, purchasing voluntary carbon offsets may be a good option.
Carbon credits also reduce emissions but in a different way. A carbon credit doesn’t represent a reduction of emissions somewhere else in the world but rather the right of the holder to emit one metric ton of carbon dioxide. Credits sold in a regulatory compliance market reduce GHG emissions over time by creating incentives for companies to reduce emissions and develop green technology.
Which Type of Carbon Emission Reduction Do You Need?
The type of carbon emission reduction you need depends on a few factors. Companies subject to emission reduction standards in a regulatory compliance market most likely need CER credits to meet their obligations. In most regulatory compliance markets, individuals cannot invest in carbon credits. However, you can invest in companies that trade credits. As a private citizen, voluntary carbon offsets are a cost-effective way of reducing your carbon footprint and supporting sustainability projects around the world.
While there are differences between carbon credits and carbon offsets, it can be beneficial to do both at the same time. Purchasing carbon offsets helps fund projects that increase air quality, support ecosystem health, and avoid harmful GHG emissions. While carbon credits can directly support sustainability projects, the biggest benefit is that they help to speed the transition away from fossil fuels.
With so much information available and so many options, choosing the right emissions reduction pathway can feel overwhelming. Power Wizard is here to help you navigate toward a carbon-neutral future. Learn how we can help you reach your emissions reduction goals.
