Offset Credit Accounting
Creating or Buying Credits – Financing Your Next Cool Move! Climate Change mitigation strategies aimed at reducing greenhouse gas (GHG) emissions can take any number of different forms. The most drastic one would be to simply make the emission of GHGs illegal. This is an extreme example, one that would not be a viable option in an economy based on industrial growth. A more viable options that have been implemented by some, and considered by others, to bring about GHG reductions are market mechanisms. Market mechanisms are designed to utilize market forces to change behaviour, thus leading to reductions in emissions.
Driving Behavioural Change
The most important aspect of market mechanisms is to drive behavioural change – whether by individuals, governments, companies or others – in the direction of low carbon or less emissions-intensive technologies and processes. Offset credits are one of the instruments that have been employed in the carbon market to reduce emissions. However, the market mechanisms that have emerged so far vary quite a bit in their mechanics. As a result, the offset credits generated in these markets will vary accordingly.
How does a carbon market work?
In a so called carbon market (this usually encompasses all greenhouse gases); regulated entities can buy or sell allowances or permits for emissions, or credits for reductions in emissions of specified pollutants. Carbon trading can be done at a regional, national or international level. Under a typical carbon trading regime, regulated emitters will be allocated a limited number of emissions. Emission allowances may be created by a regulating entity, through emissions reduction activities or both. These emission allowances can be auctioned or given away for free. Once initially allocated or created, emission allowances are fully fungible commodities, meaning they can be bought, sold, traded or banked for future use. Often, carbon markets will also allow the use of offset credits as a compliance tool. Allowances effectively set a price on GHG emissions while credits set a cost reward for the investment made to reduce or avoid GHG emissions.
Creating Offset Credits
Offset credits are created through the implementation of projects that result in emission reductions or removals beyond what would have been done under normal business activities (the so-called “business as usual” baseline). One credit represents the reduction or avoidance of emissions of one tonne of carbon dioxide equivalent (CO2e). Once offset credits are created and certified by accredited third parties, they can be sold to buyers in the market (usually regulated entities that need to meet certain compliance obligations). The system described above is often referred to as a “compliance market”. Offset credits can also be sold in the voluntary market to non-regulated entities who are looking to reduce their carbon footprint voluntarily.
Opportunities in the Carbon Market
You can purchase credits to offset unavoidable GHG emissions to either meet your own carbon neutral targets or to comply with regulatory emission requirements. You have to make sure the credits you buy are appropriate for the purpose you want to use them for. GHG Accounting can help you make the right decision and evaluate this in the most cost-effective way.
You can also create offset credits. Offset credits can help generate revenue that you can put towards your next efficiency investment. Do you have to replace old machinery, installations or boilers? Or are you changing the way you deal with waste products, energy and emissions? Even if you have done so recently, your actions may still qualify as an emissions reduction project and can earn you real cash!
What GHG Accounting Can Do For You
The effective accounting and management of greenhouse gas (GHG) emissions requires unambiguous, verifiable specifications. This will ensure that a tonne of carbon equivalent can be consistently calculated. To that end, an internationally agreed upon standard for measuring, reporting and verifying GHG emissions was introduced in 2006 by the International Organization for Standardization (ISO) and is referred to as ISO 14064. GHG Accounting Services Ltd. provides specialized GHG consulting and accounting services, including (i) emissions reporting and footprint inventory quantification, (ii) emissions reduction project planning, and (iii) quantification, documentation and carbon offset credit registration.