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Clarification On Carbon Credits

The purchase of high-quality carbon credits is a viable option to help contribute to a carbon-free, low-carbon safe world. But it can be confusing when you try to answer what appears to be a straightforward inquiry “How do I spend for carbon credits?” What makes an individual carbon credit less expensive the other? Aren’t all carbon credits one ton of carbon dioxide that is that is prevented from entering the atmosphere? We’d like to give some clarity on the way trade carbon credits can be evaluated considering the significant variations between the projects which issue these credits.

First, let’s define value. It is the Natural Capital Protocol provides a an excellent foundation for its various aspects:

Value (noun) Amount or value of something.
Market value: The price that something can be purchased or sold on a market.
Price is the amount of money that is expected, needed or paid for something (normally needing the presence of market).
Economic value is the importance of, value, or utility of something or service to the public which includes the entire range of market and non-market value. Technically speaking, it is the total of the individual’s preferences in relation to a certain amount of the product or service. Economic value is usually defined by comparing marginal or incremental changes in the demand for the product or service, by using money as a measurement unit (e.g. $/unit).

As the environmental markets, like the carbon market that is voluntary mature and expand, they could include a variety of different methods of pricing their assets, such as carbon credits.

Pricing is based on market dynamic:

The market for carbon today is largely driven by demand and supply regardless of any implications for the project regarding its long-term viability.

Markets are extremely effective to increase competition and reduce costs of achieving an aim. But what happens if that goal is security for our climate , and ensuring access to human rights that are fundamental like water, food education, and good health? In the event that carbon credits are purchased at a price lower than the amount needed to sustain the project could mean that projects may cease operation in the communities they help. In addition, failing to take into account the benefit they bring in terms of beyond-carbon benefits for development can lead to an effort to get towards the bottom, which means that the most reputable projects may end up being the first ones to be unable to succeed.

Gold Standard believes that organisations as well as individuals have the opportunity to think about the long-term social and environmental impacts of their investment decisions and evaluate both the cost and real value of the results of projects.

Pricing is based upon project costs:

A cost-based model is one that takes into consideration the costs involved in implementing the project. It is employed to aid in ensuring the continual success of projects. This model, known as the Fairtrade minimal pricing system (Figure 1.) is an example of how this model works in real life. It calculates a minimum amount that guarantees the cost of the average of the project will be paid for, with the additional “Fairtrade Premium” in addition to which is paid direct to local community in order to finance activities that will assist them in adapting and becoming more resilient to the changing climate.

Fairtrade Minimum prices for all projects that are eligible:

Energy Efficiency Energy Efficiency 8.20EUR/tCO2e + 1 EUR Fairtrade premium
Renewable Energy Renewable Energy 8.10EUR/tCO2e + 1 EUR Fairtrade premium
Forest Management- 13EUR/tCO2e + 1EUR Fairtrade premium

A cost-based model is an important way to ensure sustainability of projects but it does not specifically reflect the added benefit these projects bring to sustainable development.

Pricing is based on the value of what was provided:

Although each Gold Standard-certified project plays an important role in the transition to an economy that is low carbon Our projects also exceed the carbon reduction. Utilizing a model based on value to determine the price of carbon credits allows us to reflect the complete economic, social and environmental impact of a project. That means both emission reductions as well as the other benefits to development that could transform lives.

The United States Environmental Protection Agency (EPA) issued the latest report the year 2015 to calculate the total carbon cost to society. Figure 2 summarizes the costs over time based on various assumptions and risks of climate science. This means that for each one tonne of carbon dioxide that we release to the air, we will pay between $11 and $212 for environmental damage as well as negative social consequences. Theoretically, they impacts should be considered when calculating the cost of carbon credits.

To go further and shine a spotlight on the value that goes above carbon-related mitigation Gold Standard commissioned economists to perform a comprehensive assessment of the socio-economic benefits derived through our projects. The result was that projects that adhere to safeguards, work with local stakeholders, and offer the development benefits that go beyond climate change provide shared value in the millions of (US equivalent) dollars. The economic worth from Gold Standard project impacts per ton of CO2 is observed in Figure 3.

The prices in the voluntary carbon market are a reflection of certain of these “economic worth” principles. For instance, the prices on community clean cooking stoves that often provide vital health benefits to children and women typically are more expensive than, for instance large-scale renewable energy projects. But ultimately, they are subject to the forces of demand and supply without any safeguards, such as the requirement for a minimum price. This is the reason there’s a huge gap between historical average prices of carbon credits in relation to the economic the impacts they generate as illustrated in Figure 3.

Gold Standard’s holistic standards, Gold Standard for the Global Goals, aims to resolve this gap by more accurately quantifying carbon-free benefits of the other sources in a consistent and comparable manner. In our meantime, we encourage that those who purchase carbon credits to comprehend the full extent of value creation facilitated through these initiatives.

There is a growing awareness in those in the private sector about the real importance of natural capital such as a stable climate, healthy ecosystems, and also improvements in social indicators like better quality of life and equality between women and men. In particular, the climate. Swiss retailer Coop set their own internal price for carbon emission at CHF 150 (roughly USD $150) to encourage innovation and invest in the Gold Standard-certified emission reduction initiatives that also benefit communities in their supply chain. Microsoft demands their internal departments to create an item in their budget that reflects the costs of their carbon emissions. This is then converted into an amount of carbon which they pay to the carbon investment fund which generates new funds for sustainable initiatives. These include internal emissions reduction initiatives in addition to helping projects outside of their operations through the purchase of carbon credits.


The final decision of which initiative to fund and in what much you’ll pay for it is somewhat like managing the real estate market. There are many various factors to consider, including the quality, size, type and area. While “value” can be somewhat subjective based on your business’s goals, expectations and objectives, and is dependent on the forces of demand and supply, Gold Standard advocates for prices of carbon credits that be more in line with the actual social costs of carbon as well as the economic value it brings in other impacts, and rely on the potential of markets to provide this service at the lowest cost.