Exploring the Lifecycle of a
Carbon Project
Ever wonder where carbon credits come from? They don’t get generated overnight. Project developers must satisfy some fundamental requirements and jump through many (necessary) hoops before credits are issued.
First, a carbon credit’s very existence depends on a carbon project doing something additional — in other words, the project generating the credit must have emission reductions or removals that wouldn’t have occurred in a “business-as-usual” scenario.
But how do we measure “business-as-usual”?
How Carbon Project Baselines Work
Enter the baseline: a counterfactual (fancy word for “never happened”) scenario that won’t occur, but would have occurred in some alternate reality where the carbon project didn’t exist. Emission reductions or removals can be quantified and measured against that baseline.
Now take the difference between that alternate reality and, well, reality. Your result is the climate benefit that’s able to generate credits. Each carbon credit represents one tonne of GHG emissions removed or avoided, as compared to the baseline.
For a baseline to be considered credible, estimates must be conservative — they should assume that less rather than more GHGs would have been emitted. This is something the carbon standards will want to see as it helps determine whether a project’s benefits are truly real and additional.
Calculating baselines is difficult work, and doing it right requires deep industry expertise and adoption of the latest and greatest standards. But this baseline work is essential.
And of course, all carbon credits must be issued, verified, accounted for, certified and registered by an independent third party known as a carbon standard.
So if you hear the Voluntary Carbon Market (VCM) referred to as a “baseline-and-credit” system, now you know why.
This is in contrast to the compliance markets. They more often use a “cap-and-trade” system where regulators (usually governments) set an overall limit on emissions and issue permits, or “carbon allowances,” which certain energy-intensive companies are required to purchase to offset emissions.
The 8 Steps of the Carbon Project Lifecycle
So…get a baseline, get credits?
It’s not quite that simple.
That baseline needs to come from somewhere, and there’s still a lot of work to do once it’s figured out. Let’s go over all the steps of the process through which VCM projects come to be, climate benefits are generated, and carbon credits are issued and traded — we call this the “project cycle”.
Planning
During the project’s Planning phase, developers will choose a VCM carbon standard and follow their approved methodology. Among other things, that methodology should help guide the baseline calculation. Often this step also includes undertaking feasibility studies, as well as identifying and consulting with stakeholders.
Design
At the Design phase, proponents of a project prepare documentation according to the guidelines of the carbon standard they hope will issue their credits. The idea is to show the project is correctly applying its chosen methodology and meeting its requirements.
Validation
Next comes Validation by another independent (not the carbon standard) third-party auditor. Often referred to as a Validation or Verification Body, they’ll report back after an audit of the design documents, which typically includes a site visit and consultation with stakeholders.
Registration
The project’s Registration under the chosen carbon standard happens once the standard has reviewed the validation reports and is satisfied the project meets all rules and requirements.
Implementation
After registration comes Implementation, aka Doing The Thing! (As laid out in all those documents submitted for validation and registration, of course.) At last the project becomes a reality.
Monitoring
Project developers are then responsible for the Monitoring phase — making sure the emission reductions are actually happening as described in the project documents, and recording it all in periodic monitoring reports.
Verification
In what’s called the Verification phase, those monitoring reports get reviewed by an independent third party auditor and the carbon standard under which the project is registered.
Issuance
Finally, we arrive at the Issuance of the carbon credits by the carbon standard.
Once issued, credits can be sold, traded, or retired. Usually the terms of a sale are previously established in an Emission Reductions Purchase Agreement (ERPA), and the sale itself is recorded in the carbon standard’s registry to ensure transparent accounting.
And that is how carbon credits are born.
The bottom line
The creation of high-quality, credible carbon projects is a long and difficult process - often taking years to move fully through its lifecycle.
If you’re a developer looking for help bringing your project to life, or an enterprise interested in investing in high-quality carbon credits, contact our carbon experts today.
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