Carbon credits or carbon offsets are permits that companies can purchase in order to be allowed to release a certain amount of greenhouse gas emissions, without being hold accountable for those. For example, one carbon credit is equivalent to the removal of one ton of carbon dioxide from the atmosphere.

This means that if a said company purchases 100 carbon credits or 100 tons worth-of carbon credits, it is allowed to release 100 tons of greenhouse gas emissions through its activity, while still being carbon neutral.

Individuals can buy their way through the sustainable future, by purchasing carbon offsets themselves. An average American would need to buy 16 carbon credits per year, as they release 16 tons of greenhouse gas emissions per year, while the global average is 4 tons of carbon emissions.

What is the role of carbon credits

Carbon credits have two main objectives, the first being to help companies reduce their impact on the environment, by compensating the emissions they release through their activity, emissions which couldn't be eliminated in other ways.

The second purpose of carbon credits is to enable the companies that emit these permits to financially support their environmental efforts. Carbon credits are usually emitted by companies that contribute to supporting the environment, through reforestation, afforestation, ocean-based carbon capture and biochar technologies, but aren't limited to these.

Thus, organizations that work in the field of restoring forests and ecosystems or that use artificial or nature-based carbon capture solutions can emit carbon offset permits for companies that want to use quick, short-term solutions to lower their carbon-intensity.

Microsoft is one of the companies that recently purchased a large amount of carbon credits from various companies to support its climate efforts, one of the agreements being struck with Catona Climate. Thus, the American technology company purchased carbon credits worth 350.000 tons of CO2 emissions, which will be compensated by supporting agroforestry projects in Kenya.

Besides carbon removal, farmers will benefit from healthier and more productive yields, without using harmful fertilizers, as well as from more stable terrains in case of floodings. The prevention of deforestation and ecosystems protection is also among the objectives of the Lake Victoria Watershed Agroforestry Project. Catona will also collaborate with experts at non-profit organization Trees for the Future, which are also focused on helping farmers take better care of the soil and contributing to the regeneration of ecosystems.

Additionally, if a company purchased a certain amount of carbon credits, but doesn't need all of them anymore, due to progressing on climate goals in a different way, it can sell the remaining credits to another company that wants to reduce its impact on the planet.

Thus, for example, if one company purchased 500.000 tons worth-of carbon credits, but reduced its emissions-intensity enough that it only needs 400.000, it can sell the remaining 100.000 tons, making some profit, while improving climate performance.

Carbon credits advantages and drawbacks

For a company that uses carbon credits, these can bring advantages to the business, but they can also damage its reputation, if not used wisely. For carbon credits to be effective and credible in the eyes of investors and the consumers, they need to be verified by third parties and as it is the case for everything, high-quality carbon credits cost more money.

Still, one of the advantages brought by carbon credits is that they can boost the reputation and attract investors, especially if the carbon offsets are verified and proven to bring environmental benefits.

Secondly, they can help companies comply with ever-increasing environmental requirements and regulations, as ESG standards start to put more and more pressure on businesses to lower their impact on the planet.

Additionally, carbon offsetting can be a cost-effective way to cut the carbon output of a company in the short-term, until investments in more complex technologies are made to allow for true decarbonization. In a way, carbon credits can buy companies time to take more meaningful measures towards protecting the planet.

Moving to the drawbacks now, however, and we first realize the carbon credits are not a replacement for real measures that reduce greenhouse gas emissions, such as better waste management, operating battery electric vehicles or switching to renewable power.

Additionally, continuously buying carbon credits can lead to a company losing money, as it will only bring benefits in the short term and for a certain amount of emissions that are released. Thus, instead of making a higher investment in technologies that would lead to a constant reduction in greenhouse gas emissions, companies might find themselves needing to constantly purchase 100.000 tons worth-of carbon credits just to meet environmental regulations.

To sum up, while carbon credits definitely have a role in today's fight for a cleaner environment and for a greener planet, companies shouldn't get too comfortable with using them, as they can get distracted from investing in their own climate technologies and solutions.

Helping organizations that contribute to reforestation and sustainable agriculture efforts, for example, definitely brings benefits the ecosystems and local communities, but collective carbon-reduction efforts are ultimately what will help us achieve our long-term climate goals.