Pricing a Carbon Credit

It is reasonable to expect that carbon credit costs will vary, and carbon credit prices vary for many reasons. Projects may be located in any country in the world, reflecting the costs of development in the host country. Projects also encompass a wide variety of forms and scale, in a variety of sectors. Projects may also have other benefits beyond the removal of carbon from the atmosphere. Often, wonderful co-benefit comes hand in hand with carbon projects. Some projects even achieve additional certification in their achievement of positive societal and ecological benefits. Such benefits may include protection of biodiversity, empowerment of women, positive childhood health outcomes, clean water, educational opportunities, sustainable economic development and much more.

Carbon markets, as with all markets, are subject to the rules of supply and demand. A good deal of time, effort and money go into creating a carbon project. Creating a robust supply depends on the continued hard work and resources from dedicated individuals, across the world. Demand comes from both voluntary carbon management and from those corporate entities under a regulatory compliance regime. While carbon credit purchases are not driven by price alone, in all circumstances, pricing will be competitive.

Generally, the price of a carbon credit must account for the costs of the initial project development. The ongoing maintenance and monitoring of the project is also embedded in the carbon credit price. The carbon price may also reflect the cost of 3rd party verification, a cost that will vary depending on the carbon project type, location and the demand for specialized technical competencies. Sometimes the vintage of a carbon credit, the year the carbon credit was created and verified, will be accounted for in the carbon credit price. A carbon credit may lose value over time, particularly so if it’s been sitting around for many years.

A carbon price may also be used to contribute to the long-term viability of the carbon project. Often project activities are expected to continue long after the carbon crediting period has expired. A registered carbon project may only be able to earn credits for 20 or 30 years, while the project activity is intended to continue for 100 years.

Carbon credits may also be bought and sold before they are finally retired by the end user. The profit margins for the brokers and resellers are typically slim, while these middle people are key to keeping the marketplace moving. Traders are industry experts and able to connect buyers with a host of criteria to the right project that meets the buyers’ needs. With most goods and services, the consumer doesn’t know the specific costs of bringing a product to market, while a knowledgeable consumer will know a good deal when she sees one. Carbon credits are unique in that purchasers’ own personal and immediate life may not be enhanced by their acquisition, but that purchase serves to make the world better for all of us. Truly, we all benefit from the creation and sale of carbon credits. We all share in this benefit as community members in our global village.