Where To Buy Carbon Credits?

Key Insights:

• It is the responsibility of both corporate buyers and project owners to understand the different methods of buying and selling carbon credits in the Voluntary Carbon Market.
• Transparency, quality, and impact must be considered higher priorities than just purchasing and selling quickly via a broker.
• Marketplaces can offer better data, quality, and transparency when it comes to buying carbon credits

The growth of buying carbon credits to compensate for residual emissions has naturally led to the development of multiple ways and methods of purchasing. A key question many conscious companies looking to compensate for their residual emissions are asking themselves is: ‘where should we buy carbon credits?’ In this article, we answer that question with a comparative look at the two main methods: brokers and marketplaces.

As the last COP summit in November 2022 in Egypt highlighted, there is a drastic need for private sector involvement to help tackle the climate, biodiversity, and social crises we collectively face.

To date more than 4,000 companies have made climate pledges and signed up to the Science Based Targets Initiative (SBTi), a partnership that drives climate action in the private sector by enabling the setting of science-based emissions reductions targets.

In 2022, the primary market for carbon credits is expected to hit $1.2 billion (Trove), and this number is forecast to hit $40 billion by 2040. While this is promising, it remains true that the Volunatry Carbon Market (VCM) lacks standardization as well as transparency and requires further development.

Brokers vs. Marketplaces

For many years the VCM has been dominated by brokers facilitating carbon credit deals between corporates and carbon projects.  Some brokers do play an important role in the market, helping to connect buyers with sellers, and getting projects off the ground by offering financing and expertise.

However, brokers have faced significant criticism in the past. Mostly, this is related to non-transparent pricing, a lack of standardization, limited focus on project quality, misrepresented impacts, and purchasing processes.

With the market growing rapidly there is now an emergence of different methods to purchase carbon credits for company buyers. The VCM now plays host to a wide array of players including traditional brokers, retailers, traders, and project owners offering deals via marketplaces.

The Options

Broker: Typically, brokers will purchase a large volume of credits directly from project owners and then sell these with a mark-up to interested companies. They may work with a variety of clients, including companies, governments, and individuals, and may be involved in the trading of both voluntary and compliance-based carbon credits. Many brokers are offering consulting services for companies to measure emissions, set targets, and implement reduction measures.

Marketplace: A carbon credit marketplace provides a digital infrastructure for project owners to sell their carbon credits directly to corporate buyers. Typically, this will include standardized contracts and transparent pricing. The latter will ensure the full price of the carbon credit goes directly to the project owner.

Retailer: Similarly, to carbon credit brokers, retailers purchase credits in a large volume. However, compared to brokers they offer the acquired credits online with a mark-up in place.

Project Owner: In some instances, project owners are selling their carbon credits directly to corporate buyers in an OTC deal structure, however typically only to big buyers interested in large volumes. This is the most direct way to purchase credits but relies upon the buyer conducting deep research and understanding how best to identify quality projects.

How Should You Buy Carbon Credits?

In this article we analyze and compare two main methods of purchasing carbon credits: brokers and marketplaces. To do this we have reviewed both methods on four different criteria: pricing; quality assessment; project selection and finally, the purchasing process.

Carbon Credit Pricing

For the VCM to succeed in contributing to decarbonization efforts, transparency is crucial. This is particularly relevant when it comes to the prices offered for carbon credits, and this is an area of contention when it comes to brokers.

Brokers can dictate the price of the carbon credits they sell with no transparency on the margin included. Corporate buyers only see one final price.

As uncovered by the Financial Times, this margin can sometimes be up to twice or three times more than the original price the credits were sold for. In one example, carbon credits generated by Worldview International Foundation (WIF) were sold at $30 per ton, almost triple the price they were originally sold for to the broker.

High-quality projects selling carbon credits can deliver climate benefits, biodiversity benefits, plus community and economic benefits. However, with brokers not disclosing pricing structures or details on the projects, there are real questions about how much of the money paid by companies reaches projects and thus how much impact is made.

This is what marketplaces or platforms such as goodcarbon seek to avoid and eliminate by offering a transparent means of buying and selling carbon credits. The price of credits offered is defined by the project owner alone and displayed accordingly to interested company buyers on a digital marketplace.

A flat or percentage fee is charged for any transaction on the marketplace, but this is paid for by the buyer, thus ensuring the full amount of the carbon credit fee goes directly to the project owner. This ensures every purchase of carbon credits is traceable, transparent, and that real impact is made.

Quality Assessment

Global demand for carbon credits outstrips quality supply. There is a real need both for companies to reduce their emissions and for a ramp up of quality projects to assist with the compensation for unavoidable emissions. Ultimately, it is paramount for companies to know the projects they are investing into can prove their carbon credits are verified by a third-party according to a recognized standard, e.g. – Verra. Equally, it’s also important the projects are permanent and additional among many other quality criteria. Without meeting these criteria, companies who invest into such projects risk being accused of greenwashing and damaging environmental integrity.

Brokers in the VCM typically look to trade large volumes of carbon credits. Frequently, quality is deemed less important to securing a large volume and offering attractive prices. This coupled with the shortage of quality credits on the developing market leads to quick deals that can offer limited impact.

In contrast to brokers, marketplaces often offer more transparency on the project’s quality, for example through more stringent quality assessment processes. The quality of such assessments can vary, and the depth is often reflected in the transaction fee that is charged.

Many marketplaces are also integrating third-party project rating services such as Sylvera and BeZero. These carbon intelligence platforms apply data and machine learning technology to provide quality assessments of projects to interested buyers.

At goodcarbon, we have developed a quality assessment that enables the comparison of projects across three dimensions: impact, risk (including permanence), and integrity. This framework evaluates five impact dimensions: climate change mitigation; biodiversity enhancement; benefits for local communities; climate change adaptation, and pollution reduction and resource management. By utilizing this framework alongside existing external verification standards, such as the Verified Carbon Standard (VCS), we choose project partners that can deliver the most trustworthy and genuine impact.

Project Selection

Like many markets providing a choice of investment opportunities is appealing when it comes to investing into carbon projects. Buyers are motivated by a mix of different reasons for purchasing carbon credits. These range from the need to offset residual emissions, to meeting regulatory requirements, to demonstrating to consumers and stakeholders their commitment to compensating the environmental impact of their operations.

Therefore, it can prove beneficial for a company to have the option of purchasing credits from multiple sources and being able to build a portfolio across multiple asset classes, geographies, and maturities. Marketplaces offer companies the possibility to see the selection of projects available including volume and prices and to choose their preferred project based on the transparent information provided.

This contrasts with brokers, who will typically offer simple back-to-back trading of projects. This means there is often limited choice and typically limited information on the projects available to interested buyers.

Purchasing Process

The VCM is often criticized for its lack of transparency and standardization and the nature of the deals struck by brokers feeds into this. Typically, the transactions conducted by brokers are OTC via email or phone. This lack of standardization means there is a distinct lack of transparency in the deals conducted.

Furthermore, using a middleman service means there is no direct contact between project owners selling carbon credits and the companies buying. As previously explained, this enables increased margins to be added on by brokers and means quick deals are favored over the true quality and impact of projects being offered.

Unlike brokers, marketplaces offer a far more transparent means of purchasing. In goodcarbon’s instance, we offer a convenient, compliant, and digital purchasing process. Project owners and companies can both sign up to our platform and be in direct contact with one another. With every purchase a standardized contract is digitally closed between buyer and project owner. By offering standardized contracts on every purchase, we allow for the high tradability of credits and ensuring the process is fully transparent.

Buy and Sell Carbon Credits Wisely

The Voluntary Carbon Market is estimated to be capable of delivering 40% of decarbonization needs by 2030 , plus a range of additional biodiversity and social benefits. Therefore, it must be stressed that selling and buying carbon credits should always be done with a quality first mindset. Failure to do so only results in low-quality credits entering the market with limited impact, companies unwittingly greenwashing, and ultimately, more damage to environmental integrity. This is not an option.

It is on every market player – projects, companies, and intermediaries – to raise their standards to ensure carbon credit selling and buying really makes the impact it claims to. This means project owners have the responsibility to not sell to the first broker, who will offer a quick sale of 80% of their credits, in exchange for an easy fee.

Instead, they should seek to explore all the options available to them in the VCM and understand the benefits on offer to the project, their community, and the planet by doing so. By taking the time to analyze such options they can ensure impact is reached with the credits they are selling.

The same applies to companies looking to purchase carbon credits. The specter of greenwashing always lingers when it comes to such transactions. Thus, companies equally should be motivated not just by a positive PR story but understanding that their investments need to truly have a lasting impact on the climate, biodiversity, and communities.

This means companies need to ensure the projects they support are high-impact, low-risk, and high-integrity. Additionally, companies should be looking to buy carbon credits via a transparent process with standardized contracts and transparent pricing that ensures due diligence has taken place.

Only with this careful analysis and consideration from both parties can we ensure that buying and selling carbon credits can live up to its potential and deliver real climate, biodiversity, and community impact.

Discover the benefits of using goodcarbon to buy or sell carbon credits. Email us at info@goodcarbon.earth