Carbon credits: What they are and what you can do with them

May 15, 2023

We're here to tell you a bit more about carbon credits and dispel some common misconceptions. If you're interested in offsetting or just a bit curious about the space - read on...

What is a carbon credit?

In 1997, 180 countries got together and signed the Kyoto Protocol, as there was already scientific consensus that global warming was occurring, and that action needed to be taken to reduce CO2 emissions.

The agreement created a number of "carbon credits" that could be used to signify an amount of CO2 being removed or prevented from entering the at atmosphere. Those carbon credits are associated with a project or change in land use, and can be bought by companies who are looking to offset their activities.

How much does a carbon credit cost in New Zealand?

Some carbon offset credits on international markets can be really cheap, but don't get your wallet out yet - these credits might not actually be all they seem to be. We've seen reports of low-quality credits making their way into the market, so it's worth doing your homework and making sure your credits are traceable and are from a reputable source.

One of our partners in New Zealand is CarbonZ, a new carbon credit marketplace in New Zealand to offer some of our offsetting credits. At the time of writing CarbonZ are selling Native New Zealand Units for $100 per tonne of carbon dioxide represented in each credit. There is also an alternative in high-integrity voluntary carbon credits, Native CarbonCrop Units (CCUs), priced at $50 per tonne.

So if your organisation has 40 tonnes of CO2 that cannot be otherwise reduced, that would cost you between $2-$4000 to offset if you were to purchase this directly.

Other marketplaces and providers offer credits too, but we like that CarbonZ are trying to make the process more transparent and equitable.

(If you’re interested in knowing more about the types of credits, and particularly the differences in forestry-based offset options, take a look at CarbonZ’s introduction video here.)

What can I do with a carbon credit?

As an individual you can trade carbon credits on a market, like stocks and shares. As a business, it starts with determining your carbon footprint and taking positive action based on the result, using a tool like CarbonTrail. Once that's done you have a choice - reduce, offset unavoidable emissions or both.

We believe that the best thing to do for the Earth is to reduce our impact on it by seeking alternatives to carbon-intensive activities, but in some cases it is the most prudent to offset some activities. This is where carbon credits come in.

Carbon credits have an amount of CO2 associated with them, and that credit can be used as part of an offset. For example if an organisation has 100 tonnes of CO2 from activities they simply cannot stop at this stage, you could buy carbon credits with an equal (or greater) value to "offset" that emission activity.

How do I understand what my emissions are?

There are calculators out there that get you a good way to understanding your footprint, but often they don't tell the whole story, with Scope 3 emissions (sometimes known as supply chain emissions) requiring some guesswork. If you’re wanting to get started without the guesswork, then take a look at CarbonTrail Starter. Any company with a Xero account can connect to CarbonTrail Starter and receive their carbon footprint for the previous financial year in minutes at no cost.

(If you’re wanting to better understand how emissions are defined and calculated, check out our blog on emissions)

CarbonTrail makes it really easy for businesses to see their carbon footprint and more importantly, how to do something about it. Using your existing accounting tools to dive deep into your business and pull out the hidden impacts lurking in your accounts.

Once you understand your emissions, you can reduce them, and offset unavoidable emissions if you need to.

Do you advise clients on carbon reduction? You may be interested in our section for Advisors.

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