Governments worldwide have launched programs designed to reduce industrial pollution and promote a safe, sustainable future. Companies that generate large amounts of greenhouse emissions can purchase carbon credits to better manage their carbon footprint. A carbon credit is a certificate or permit that grants owners the legal right to emit one metric ton of carbon dioxide, nitrous oxide, methane or other greenhouse gases. If your company produces few emissions, you may sell carbon credits to other businesses, such as those operating in the manufacturing, transportation or shipping industries.
Carbon Credit vs. Carbon Offset
Before you start selling carbon credits, make sure you understand how they differ from carbon offsets. Companies that are regulated under a cap-and-trade system have a specific number of credits they can use. If they generate fewer emissions and therefore use fewer credits, they are allowed to sell or trade those credits.
Simple things, such as switching to energy-efficient equipment or driving less, can reduce your carbon footprint. If you make such changes, you'll have more credits left. In this case, you can sell them for profit. Other businesses may be interested in purchasing credits to increase their allowance of greenhouse emissions.
Organizations that engage in energy-saving projects like planting trees or building solar farms are eligible for carbon offsets. These credits are issued to companies that achieve a significant reduction in greenhouse emissions. Just like carbon credits, they are measured in tons of carbon dioxide or CO2 equivalents. These can be purchased and sold through trading platforms, online retailers and brokers.
A project needs to meet strict requirements and pass validation checks in order to receive carbon offsets. Carbon credits, on the other hand, are easier to obtain. Both carbon credit and credit offsets empower companies to reduce the negative impact of their business on the environment.
How Carbon Credit Selling Works
Carbon markets provide an extra source of revenue for companies that take the steps needed to reduce greenhouse emissions. These allowances can be traded on several major platforms, including:
- Chicago Climate Exchange (CCX)
- European Energy Exchange (EEX)
- Power Next
- NASDAQ OMX Commodities Europe
- European Climate Exchange (ECX)
For each credit purchased, buyers have the right to emit one metric ton of greenhouse gases. As a seller, you must go through a verification process before listing your carbon credits on trading platforms. Companies that don't reach the maximum allowed emissions are free to sell excess credits.
In general, these transactions are conducted through brokerage houses called offset aggregators. Sellers need to contact the trading platform in which they're interested and request a list of approved offset aggregators in their industry.
Once a contract is signed between the two parties, the aggregator will handle all carbon credit sales on your behalf. However, it's your responsibility to make sure your business meets eligibility criteria and has the legal right to sell these credits.
How Much Can You Earn?
The price of carbon credits depends on a multitude of factors, including its market and economic value, supply and demand, size and type of project and more. In this industry, there is no such thing as a generic price. Additionally, costs fluctuate over small intervals and over continents. On October 1, 2018, for example, one ton of carbon dioxide equivalent was worth $24.80. The price dropped to $17.80 by November 1.
Most times, it's up to individual buyers and sellers to negotiate and agree on a price. That's why most companies that trade carbon credits prefer to use a trading platform. One thing is for sure: Carbon pricing and the ability to sell credits provide incentives for businesses to invest in sustainable products and reduce their carbon footprint, thus benefiting them financially.