When Buying and Selling Expiring Carbon Credits

A carbon credit is a digital certificate of emission reduction. The number of carbon credits issued is limited by the cap and trade system that limits the amount of CO2 emissions. It is possible to buy or sell a carbon credit, just as you would a bar of gold.

There are two types of buy carbon credits: long-term Certified Emission Reductions (CERs) and short-term Certified Emission Reductions (tCERs). CERs are usually re-verified every five years. They are used to account for the emission reductions that an environmental project has made. tCERs are temporary certificates that are sold for a fraction of the normal CER price.

These certificates of reduction are used by companies to help them meet their CO2 emission reduction targets. However, they are also vulnerable to risks. This article explains what risks there are when buying and selling expiring credits and proposes methods for mitigating them.

What Risks Are There When Buying and Selling Expiring Carbon Credits?

Offsets can be bought or retired by ambitious corporations or organizations. For example, Microsoft is committed to removing all carbon from its operations by 2050. Many companies are still several years away from significantly reducing their emissions. That is why the California Cap and Trade initiative set a hard carbon price floor and created a regional emissions market. In addition, Japan has projects in place to buy these carbon credits.

In order to purchase a carbon credit, a buyer must know the date the offset was issued. If a project has a “vintage” greater than five years, it is less desirable than a recent offset. Buying an older offset can also be cheaper. However, if a project has been unsold for a very long time, its quality may be questionable.

Some countries such as Switzerland have developed projects to buy these credits. Other countries such as Japan count them towards their nationally determined contributions. These credits are sometimes traded in the form of Internationally Transferred Mitigation Outcomes. Although these trades have not reached the level of widespread usage, they are a potential alternative for those who have not found a suitable project.

As the number of carbon credits increases, their value goes down. This is largely due to the large supply of carbon credits. Currently, the European carbon credit prices have plummeted to EUR2/tonne, while in 2012 the price was around EUR30/tonne. While it is possible to double-count these credits, this would not be in the interest of buyers.

To avoid this, companies will have to find a way to reduce their emissions. This can involve changing their operations and reconfiguring them in order to make them more energy-efficient. Companies also have to make sure that their emissions do not exceed the carbon cap they have set. When a company meets their emissions cap, they will have to find another way to reduce their emissions.

Purchasing carbon credits is the best option for companies and organizations that are looking to meet their CO2 reduction goals. However, these immaterial assets can become vulnerable to risks if not handled properly.