Carbon Removal, Reduction, and Avoidance Credits: what's the difference?

As the global fight against climate change intensifies, a range of market-driven solutions has emerged to curb greenhouse gas emissions and promote a sustainable future. Among the most significant of these solutions are carbon credits, which offer a novel approach to incentivising emission reductions, carbon removal, and climate resilience. 

Within this system, carbon credits are classified into three distinct categories: carbon removal, carbon reduction, and carbon avoidance. Each has a unique role in addressing climate change, yet their use cases and impacts differ. This article explores the distinctions between these three types of credits, their potential contributions to the climate agenda, and the challenges involved in ensuring their integrity.

What are Carbon Credits?

Carbon credits are tradable certificates representing one metric tonne of carbon dioxide (CO2) or an equivalent volume of other greenhouse gases (GHGs) that have been either removed from the atmosphere, avoided, or reduced. These credits are central to both voluntary and mandatory carbon markets, which aim to reduce global emissions by setting a cap on total GHG emissions and incentivising activities that either lower emissions or offset them through carbon sequestration. 

By putting a price on carbon, these markets encourage businesses, governments, and organisations to invest in climate solutions that promote sustainable growth while adhering to environmental goals.

Unpacking Removal, Reduction, and Avoidance Credits

Carbon Removal Credits

What are Carbon Removal Credits?

Carbon removal credits are awarded for activities that actively remove CO2 from the atmosphere, either through natural processes or technological interventions. These credits contribute directly to achieving negative emissions, effectively reducing the concentration of GHGs in the air. Common methods include afforestation (planting new forests), reforestation (restoring degraded forests), Bioenergy with Carbon Capture and Storage (BECCS), and Direct Air Capture (DAC) technologies.

The science of sequestration

Afforestation and reforestation projects work by capturing CO2 during photosynthesis, which trees store in their biomass and the soil. Soil carbon sequestration enhances the ability of agricultural lands to store carbon through techniques such as cover cropping and reduced tillage. More recently, DAC technologies, which use chemical processes to extract CO2 directly from the air, are emerging as a high-tech solution. The captured carbon can then be stored underground or used in industrial applications such as carbonated beverages or synthetic fuels.

Pros and cons of Carbon Removal Credits

The primary advantage of carbon removal credits is their potential to drive long-term negative emissions, which is essential for reaching global climate goals, such as Net Zero. However, the methods associated with these credits often require high levels of investment and innovation, and ensuring the permanence of stored carbon presents significant challenges. For instance, there is a risk of carbon leakage—where sequestered carbon might be released back into the atmosphere due to natural disturbances like forest fires or human activities.

Carbon Reduction Credits

What are Carbon Reduction Credits?

Unlike carbon removal credits, carbon reduction credits are awarded for activities that reduce the amount of CO2 emitted into the atmosphere, as compared to a baseline scenario. These activities typically include energy efficiency improvements, renewable energy adoption, and industrial optimisations that reduce emissions at their source but do not actively remove carbon from the atmosphere.

Practical Applications of Carbon Reduction Credits

Examples of carbon reduction projects include the implementation of energy-saving technologies in manufacturing, the shift from fossil fuels to renewable energy sources such as wind and solar power, and the optimisation of industrial processes to minimise energy consumption. These projects directly prevent the release of additional greenhouse gases by improving operational efficiency or adopting cleaner technologies.

Pros and cons of Carbon Reduction Credits

Carbon reduction credits offer clear benefits in terms of technological innovation and cost savings for companies. They help foster operational efficiencies that can yield long-term financial benefits while also contributing to emissions reductions. However, unlike carbon removal credits, they do not contribute to the long-term decarbonisation of the atmosphere since they do not physically reduce atmospheric CO2 levels. The challenge with carbon reduction credits lies in accurately measuring and verifying reductions against a baseline, as different methodologies may yield different results, making the verification process complex.

Carbon Avoidance Credits

What are Carbon Avoidance Credits?

Carbon avoidance credits are generated through activities that prevent emissions from being released into the atmosphere in the first place. This category includes deforestation prevention, methane capture, and improvements in waste management practices. This can be confusing as many Carbon Avoidance Credits are mislabeled as Carbon Reduction Credits. 

Real-world examples of Carbon Avoidance Credits

Preventing deforestation is one of the most significant ways to generate carbon avoidance credits, as trees act as vital carbon sinks. By protecting existing forests, particularly in tropical regions, significant amounts of CO2 emissions are avoided. Similarly, methane capture projects, which capture and flare methane emissions from landfills and agricultural sites, prevent this potent greenhouse gas from entering the atmosphere. Waste management improvements, such as diverting organic waste from landfills to composting facilities, also contribute to emissions avoidance.

Pros and cons of Carbon Avoidance Credits

Carbon avoidance credits are critical for preserving existing carbon sinks and preventing further emissions from entering the atmosphere. However, these credits present particular challenges related to additionality—the difficulty in proving that the emissions would have occurred without the project’s intervention. Since avoidance credits rely on hypothetical scenarios, it can be hard to determine if the avoided emissions would have happened without funding, leading to challenges in estimating their true climate impact.

Verification, Standards, and Technological Integration

Ensuring credibility

The integrity of carbon credits—whether removal, reduction, or avoidance—depends on rigorous verification and certification processes. Leading certification bodies such as Isometric, Puro, Gold Standard and the Verified Carbon Standard (VCS), better known as Verra, provide a framework for ensuring that carbon credits represent genuine, quantifiable, and permanent emissions reductions or removal. These standards require robust documentation, third-party audits, and continuous monitoring to validate the environmental benefits of each project.

Despite these efforts, the lack of a universally mandated regulatory framework remains challenging. The voluntary carbon market is particularly fragmented, and the need for global regulations and internationally recognised standards is pressing. This would ensure that projects are providing accurate data and preventing issues like greenwashing, where companies falsely claim emissions reductions based on unverified credits.

Technological integration

Advancements in technology are playing a critical role in enhancing the transparency, traceability, and efficiency of carbon credit markets. For example, blockchain technology is being used to create immutable records of carbon credit transactions, which helps prevent fraud and ensures that credits are properly tracked. Satellite imagery and AI-driven analytics are also becoming increasingly important for monitoring and verifying the impact of offset projects in real-time, improving the accuracy and confidence of credit issuance.

The Impact of Carbon Credits

Driving emission reductions

Carbon credits are a powerful tool for incentivising emission reductions across diverse sectors. By putting a price on carbon, they encourage companies to innovate and invest in cleaner technologies and processes. This market-based approach aligns economic interests with environmental goals, fostering a culture of sustainability and accountability within the private sector.

Supporting sustainable development

Beyond emission reductions, carbon offset projects often deliver significant co-benefits, contributing to sustainable development in local communities. Reforestation projects, for instance, enhance biodiversity, improve water quality, and create jobs. Renewable energy projects provide clean power and reduce dependency on fossil fuels, promoting energy security and resilience.

Enabling corporate responsibility

Participating in the carbon credit market is a strategic move for organisations to achieve climate goals and demonstrate corporate social responsibility (CSR). By purchasing Carbon Removal Credits, companies can offset their carbon footprint, meet future regulatory requirements, and enhance their brand reputation among environmentally conscious consumers and investors.

The Future of Carbon Credits

Scaling up ambition

The voluntary carbon market is expected to grow significantly in the coming decades. As governments tighten emissions regulations and set more ambitious climate targets, the demand for carbon credits—particularly those linked to carbon removal technologies—is expected to surge. From a $2 billion market in 2020, the voluntary carbon market is projected to reach over $250 billion by 2050. This expansion will play a crucial role in helping organisations and countries meet their Net Zero commitments.

Unlocking the Potential of Carbon Credits

Carbon credits represent an extraordinary fusion of economic and environmental strategies, harnessing market forces to drive meaningful climate action. Organisations proactively embracing carbon credits to mitigate their environmental impacts and enhance their ESG credentials will secure a competitive advantage in an increasingly carbon-conscious world.

As we navigate the challenges posed by climate change, Carbon Credits offer a beacon of hope. By embracing this new frontier, organisations can drive meaningful climate action, foster transparency and accountability, and pave the way toward a more sustainable future for future generations.

Conclusion: Carbon Removal, Reduction, and Avoidance Credits

As the world works toward climate goals set by the Paris Agreement, carbon removal, reduction, and avoidance credits will continue to be essential tools in the global effort to curb emissions. However, their use must be precise and well-defined to ensure the integrity of corporate claims and the true environmental impact of these credits. While challenges around verification and additionality remain, the potential for carbon credits to drive large-scale emission reductions and foster a more sustainable future is undeniable.

In the end, carbon removal credits—when properly deployed and rigorously verified—represent a vital component of the fight against climate change, enabling companies, governments, and individuals to contribute to a net-zero world. Their role will only become more significant as the world ramps up its climate efforts in the coming decades.