CARBON PRICING: What is a carbon credit worth? (2022)

Purchasing high quality carbon credits is an effective way to contribute the transition to a low-carbon, climate secure world. However it can seem complex – especially answering what seems to be a simple question, "How much should I pay for a carbon credit?" Why is one carbon creditmore expensive than another? Doesn't every carbon credit represent one tonne of carbon dioxide prevented from entering the atmosphere? We hope to provide some clarity in how carbon credits are valued, taking into account significant differences among the projects that issue them.

Purchase Gold Standard carbon credits and support the transition to zero carbon>>

First, let’s define value. The Natural Capital Protocol provides a good basis for its different aspects:

  • Value (noun):The importance, worth, or usefulness of something.
  • Market value:The amount for which something can be bought or sold in a given market.
  • Price:The amount of money expected, required, or given in payment for something (normally requiring the presence of a market).
  • Economic value:The importance, worth, or usefulness of something to people – including all relevant market and non-market values. In more technical terms, the sum of individual preferences for a given level of provision of that good or service. Economic values are usually expressed in terms of marginal/incremental changes in the supply of a good or service, using money as the metric (e.g., $/unit).

As environmental markets like the voluntary carbon market mature, they can grow to account for a number of different approaches to pricing their assets, including carbon credits.

Pricing based on market dynamics:

The voluntary carbon market today is primarily driven by supply and demand, regardless of the implications to the project in terms of long-term viability.

Markets can be very effective for driving competition and reducing the cost of accomplishing an objective. However, what if that objective is the security of our climate and providing access to basic human rights such as food, water, education and good health? Paying for carbon credits at prices below what it costs to maintain a project means that these projects may stop operating in the vulnerable communities they support. Further, neglecting to fully account for the real value they deliver in beyond-carbon development benefits can accelerate a race to the bottom, meaning that the highest quality projects might be the first to fail.

Gold Standard believes that organisations and individuals have an opportunity to consider longer-term environmental and social impacts of their investment decision and consider both the costs and true value of project outcomes.

Pricing based on project cost:

A cost-based model takes into account the implementation costs of a project and is used to help ensure the on-going viability of projects. The Fairtrade minimum pricing model (Figure 1) is an example of how this works in practice. It calculates a minimum price that ensures the average costs of the projects will be covered, plus an additional "Fairtrade Premium" on top that goes directly to the local community to fund activities that help them adapt and become more resilient to an already changing climate.

Fairtrade minimum prices for eligible project types:

  • Energy Efficiency – 8.20€/tCO2e + 1€ Fairtrade premium
  • Renewable Energy – 8.10€/tCO2e + 1€ Fairtrade premium
  • Forest Management– 13€/tCO2e + 1€ Fairtrade premium

A cost-based model is a step toward ensuring project sustainability, yet it does not specifically account for the additional value these projects deliver in sustainable development.

Fig. 1 Fairtrade minimum pricing model
The formula below shows how to calculate the Fairtrade Minimum Price for Energy Efficiency, Renewable Energy and Afforestation/Reforestation projects

CARBON PRICING: What is a carbon credit worth? (1)

Pricing based on value delivered:

While all Gold Standard-certified projects play a critical role in our transition to a low-carbon economy, our projects also go far beyond carbon mitigation. Using a value-driven model to set a price for carbon credits can truly account for the full environmental, social and economic impacts of a specific project—that is, both in emissions reductions plus the additional development benefits that can transform lives.

The United States Environmental Protection Agency (EPA) released an updated report in 2015 to estimate the total cost of carbon to society. Figure 2 summarizes these costs over time according to different risks and assumptions of climate science. This means that for every tonne of carbon dioxide we emit into the atmosphere, we sacrifice between $11 and $212 in environmental degradation and negative social impacts. In theory, these should be accounted for in the price of a carbon credit.

Fig. 2 Social Cost of CO2 2015-2050* (in 2007 dollars per metric ton)

Source: Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (May 2013, Revised July 2015)

CARBON PRICING: What is a carbon credit worth? (2)

To take this a step further and shine a light on the value above and beyond carbon mitigation, Gold Standard commissioned economists to conduct a comprehensive valuation of the socio-economic benefits delivered by our projects. The conclusion was that projects that follow safeguards, engage local stakeholders and provide development benefits beyond climate create shared value worth billions of (US equivalent) dollars. The economic value of Gold Standard project impacts per tonne of CO2 can be seen in Figure 3.

Prices in the voluntary carbon market do reflect some of these “economic value” principles. For example, prices for community-based clean cookstoves projects, which often deliver life-saving health benefits to women and children, are generally higher than, for example, large-scale renewable energy projects. But they ultimately yield to the forces of supply and demand, without safeguards such as a minimum price. This is why there is a big gap between the average historical prices for carbon credits compared to the economic value of impacts they deliver as noted in Figure 3.

Gold Standard’s holistic standard, Gold Standard for the Global Goals, aims to address this discrepancy by more rigorously quantifying the beyond-carbon benefits in a consistent and comparable way. But in the meantime, we advocate for buyers of carbon credits to more fully recognize the full picture of value creation made possible by these projects.

Fig. 3 Monetary value of Gold Standard project impacts
Per tonne of reduced CO2 emissions

(Video) How do carbon markets work?

CARBON PRICING: What is a carbon credit worth? (3)

Innovative approaches among companies: Internal carbon prices and carbon fees

There is growing awareness among the private sector on the true value of natural capital, like a stable climate and thriving ecosystems, and progress in social measures like improved health and gender equality. Specific to climate,Swiss retailer Coop sets their internal price on carbon at CHF 150 (roughly USD $150) to drive innovation and investment in Gold Standard-certified emissions reduction activities that also support communities within their supply chains. Microsoft requires their internal departments to include a budget line item reflecting the cost of their carbon emissions, which then translates to a carbon fee that they contribute to a carbon investment fund, creating new capital for sustainability initiatives.These include internal emissions reductions efforts in addition to supporting projects outside their operations through carbon credit purchases.

Recommendations

In conclusion, deciding on what project to invest in and how much it’s worth remains a bit like navigating the real estate market. There are a number of different considerations ranging from quality, type, size, and geographical location. While ‘value’ can remain somewhat subjective depending on your organization’s ideals, objectives and requirements and is subject to the forces of supply and demand, Gold Standard advocates for prices of carbon credit to more closely mirror the true social cost of carbon and the economic value provided in additional impacts, while using the power of markets to help deliver this in the most cost-effective manner.

For more in this series

  • Offset your carbon footprint by supporting Gold Standard-certified projects>>
  • Learn aboutwhy prices vary for different project types>>
  • Readaboutthe benefits ofsetting an internal price on carbon>>

Offset your emissions

Visit Gold Standard Marketplace

  • Myanmar Stoves CampaignImproving the lives of 140,000 people - saving much needed time + money, improving health and decreasing deforestation.OFFSET YOUR EMISSIONS

    $15.00 USD/TON

    (Video) How carbon pricing works
  • Emission Reductions from PET Recycling...Giving waste new life through recycling, saving emissions and creating value for nature, the economy, and society. OFFSET YOUR EMISSIONS

    $47.00 USD/TON

  • 20 MW Biomass Power Project in...Biomass project delivering benefits to societyOFFSET YOUR EMISSIONS

    $11.00 USD/TON

  • Myanmar Stoves CampaignImproving the lives of 140,000 people - saving much needed time + money, improving health and decreasing deforestation.OFFSET YOUR EMISSIONS

    $15.00 USD/TON

  • Kenya Biogas ProgrammeCooking on biogas is fast and smokeless, improving health among women + children. This project also improves crop yields + increases income.OFFSET YOUR EMISSIONS

    $24.00 USD/TON

    (Video) Carbon Markets 101: Can carbon credits increase in price?
  • Low-Smoke Stoves Project, Darfur This clean cooking project in Darfur helps deliver health and economic benefits to households in the strife-torn region.OFFSET YOUR EMISSIONS

    $15.00 USD/TON

  • Solar Cooking for Refugee Families in...Bringing peace, safety, health and empowerment to thousands of refugee families from Darfur through the use of solar cookers. OFFSET YOUR EMISSIONS

    $15.00 USD/TON

  • Ethiopian Forest Regeneration...The regeneration and new establishment of forests on Mount Damota contributes to a sustainable income for rural communities.OFFSET YOUR EMISSIONS

    $18.00 USD/TON

  • Cambodia National Biodigester Programme Using biogas to create an indigenous, sustainable source of energy in Cambodia – reducing emissions + improving agricultural yieldsOFFSET YOUR EMISSIONS

    $24.00 USD/TON

    (Video) What is carbon trading? | CNBC International

Tags: Supply Report, carbon markets

Prev post Next post

Related Posts
  • SDI recommendations For SD Provisions in Article 6 Posted by claire.willers 24 Aug

  • CARBON PRICING: Setting an internal price on carbon Posted by Gabriel Kuettel 14 Oct

  • CARBON PRICING: Why do prices vary by project type? Posted by Gabriel Kuettel 13 Jul

  • The role of voluntary carbon offsetting in a post-Paris world Posted by editor 14 Mar

  • Perspectives on the Voluntary Carbon Market Posted by editor 03 Jul

    (Video) Carbon Credit is bigger than Bitcoin ,Gold And Silver | Investing Tips | Robert Kiyosaki

FAQs

How much carbon is a carbon credit worth? ›

Most prices of carbon credits are below the $40-80 per metric ton of carbon dioxide emitted needed to keep global warming within a 2-point degree, as provided by the Paris agreement.

Learn More Now

What is the value of 1 carbon credit? ›

One carbon credit is equal to one tonne of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach.

Keep Reading

What makes a good carbon credit? ›

To assess good carbon credits, we are really checking for three things: climate integrity, social integrity and biodiversity integrity. Verified means that the emissions reduction must be accurately measured (by an independent third-party) and verified.

Keep Reading

Videos

1. Carbon Credits Explained
(CHOOOSE)
2. RFF Explainer: Carbon Pricing 101
(Resources for the Future)
3. Carbon Credits Token on the Blockchain | carbon credits investing 2021
(Carbon Market News)
4. How can carbon pricing work in a business
(Climate Impact Partners)
5. Carbon Pricing: What is it?
(Devex)
6. What is Carbon Pricing?
(Down To Earth)

Top Articles

~Hop~ Aboard the Disney Skyliner Transportation System at Walt Disney World

Building Maintenance Management Software Market 2022: Growth Insights, New Developments, Shares, Trends, Emerging Technologies | 109 Report Pages

14 free online courses about computer security | WeLiveSecurity

≡ Emergency Numbers List: 911, 112 & 999 Numbers Worldwide

30 Unsolved Mysteries that Fascinate Americans — Best Life

Best Bitcoin and Crypto Wallets for September 2022

Job Interview Conversation - Questions and Answers Sample - Career Cliff

GPS Location Monitoring Guide for Employers

The 7 Best Water Softeners of 2022

5 Different Types of Water Heaters

Solutions of Google Play not working - MEmu Blog

You might also like

How to Get a Legitimate Emotional Support Animal (ESA) Letter | DogCentral.org

Axle Fuel Card FAQs - Pilot Fleet Solutions

Al Sagr National Insurance Company Review

Rules for Models - Wiki.MyFreeCams.com

11 Data Science Careers Shaping the Future

Office Manager Job Description for a Resume: Examples

Hong Kong’s national security law: 10 things you need to know

What Is GPS Tracking? How It Can Benefit Your Business

5 Different Types of Water Heaters

Solutions of Google Play not working - MEmu Blog

Latest Posts

16.2 Developing an Industry Transition Strategy

Transforming the transport sector is crucial for the success of the clean-energy transition.

Summit: Electrification of Transport

PRIME Z690-P|Motherboards|ASUS Global

EPU - Contact us - Common Problems

Asia Energy Transition Conference from S&P Global Platts

Espacenet - FAQs

Transport and Climate Change Week 2022: Insights & Experience from China Shared at Global Sustainable Transport Conference - SUSTAINABLE TRANSITION CHINA

CDP discussion paper for companies

STATE OF TENNESSEE REAL ESTATE ASSESSMENT DATA

Article information

Author: Prof. An Powlowski

Last Updated: 12/02/2022

Views: 5804

Rating: 4.3 / 5 (64 voted)

Reviews: 87% of readers found this page helpful

Author information

Name: Prof. An Powlowski

Birthday: 1992-09-29

Address: Apt. 994 8891 Orval Hill, Brittnyburgh, AZ 41023-0398

Phone: +26417467956738

Job: District Marketing Strategist

Hobby: Embroidery, Bodybuilding, Motor sports, Amateur radio, Wood carving, Whittling, Air sports

Introduction: My name is Prof. An Powlowski, I am a charming, helpful, attractive, good, graceful, thoughtful, vast person who loves writing and wants to share my knowledge and understanding with you.