Carbon Credit Mechanism

Carbon credits originate from trees that absorb CO2 gas. There are two types of trees: crops and forests. Crops are artificially influenced plants involving factors such as seeds, water, and fertilizers, while forests are natural vegetation without human intervention.

Carbon credits represent the total amount of carbon absorbed by trees, calculated in metric tons of CO2 equivalent (abbreviated as tCO2e), after subtracting the greenhouse gas emissions (GHGs) generated during their growth.

There are three levels to assess GHG emissions within a project area (crop/forest area):

• Level 1: Direct GHG emissions from the project.
• Level 2: Indirect GHG emissions that can be measured from input sources like soil, water, gasoline, oil, etc.
• Level 3: Indirect GHG emissions from product supply chains, such as distribution, food consumption, timber, etc.

TraceVerified provides tools to assess GHG emissions and calculate carbon credits for farm and forest owners participating in the carbon market to increase their income.

Voluntary Carbon Credit Market

In 2021, the voluntary carbon credit market transacted $57 million, accounting for 67% of the total transaction value. Voluntary carbon credits are negotiated by companies based on projects verified against carbon standards like Verri, GS, etc.

Buyers of voluntary credits can be companies, NGOs, or individuals looking to offset their activities and products or fulfill social responsibilities. They are always interested in the “story behind” specific projects and their associated benefits, such as local employment, ecosystem protection, and health improvements.

Mandatory Carbon Credit Market

In 2021, the mandatory carbon credit market transacted $28 million, developed under the UNFCCC mechanism. Participating countries have national determined contributions (NDCs). Projects in developing countries register under the Clean Development Mechanism (CDM)/Programme of Activities (PoA) with national DNA, and credits are verified by intermediate verification organizations, forming Certified Emission Reductions (CERs).

Countries regulate emission caps for businesses and require inventory and reporting compliance. In cases of non-compliance, companies must purchase carbon credits for offsetting or pay taxes.