What are the differences between carbon quotas and carbon credits?
Summary
Carbon quotas are limits imposed by regulation, requiring companies to adhere to a CO2 emissions cap. Carbon credits, on the other hand, are voluntary certificates that allow emissions to be offset by funding sustainable projects.
Start your decarbonized future in good hands
INDEX
% de l'article lu
What is a carbon quota?
Carbon quotas are limits placed on companies regarding the amount of greenhouse gases (GHG) they can emit over a given period. This system is based on the “cap-and-trade” principle, where an overall emissions cap is set for a sector or region, and companies are allocated or must purchase quotas corresponding to a specific amount of CO2 they can emit.
Companies that emit less than their quotas can sell their surplus on the carbon market, while those that exceed their quotas must purchase additional emissions rights or face penalties. This mechanism encourages emission reductions while offering a certain level of flexibility to businesses. The European Union Emissions Trading System (EU ETS) is an example of such a system.
What is a carbon credit?
Carbon credits are certificates representing one ton of CO2 that has not been emitted or has been reduced through a sustainable project. These credits are generated by projects aimed at reducing or capturing GHG emissions in various sectors such as reforestation, renewable energy production, or energy efficiency.
Carbon credits come from projects located in specific countries or regions and can be purchased by companies or individuals looking to offset their own CO2 emissions. This system is based on a voluntary market where credits are sold by projects certified by organizations such as the Gold Standard or Verified Carbon Standard (VCS).
Comparison between carbon quotas and carbon credits
Objective
Carbon quotas are a regulatory tool imposing strict limits on the amount of GHG emissions that companies can emit. Their main objective is to force the most polluting sectors to reduce their CO2 emissions while allowing them to trade quotas to remain within authorized limits.
Carbon credits, on the other hand, are based on a voluntary system. They allow companies or individuals to offset their excess emissions by funding sustainable projects. The goal is to support global emissions reduction, even if no regulatory limit is imposed.
Operation
Carbon quotas operate under a “cap-and-trade” system: a company is given an emissions cap and can trade quotas to meet it. If a company emits less than expected, it can sell its surplus quotas. If it exceeds its cap, it must buy additional quotas to compensate.
Carbon credits allow companies to purchase credits to offset their excess emissions without any imposed regulatory limit. These credits come from certified emissions reduction projects.
Sectors involved
Carbon quotas primarily apply to heavy industries (steel, cement, chemicals), the energy sector (power plants), and aviation. These sectors, being the largest GHG emitters, are subject to strict emissions limits under regulated systems such as the EU ETS.
Carbon credits are available to any sector looking to offset its emissions. This includes businesses and individuals who can buy credits to fund certified emissions reduction projects, such as reforestation initiatives or renewable energy projects.
Tip
To optimize your emissions reduction strategy, combine the use of carbon allowances with the purchase of carbon credits to comply with regulations while supporting sustainable projects.
Advantages and limitations of carbon quotas and credits
Advantages and limitations of carbon quotas
Carbon quotas offer several advantages. They mandate a compulsory reduction in GHG emissions in the most polluting sectors, ensuring a gradual decrease in emissions. Additionally, the system provides businesses with flexibility, allowing them to trade quotas to adjust their emissions based on their activity levels.
However, the system also has limitations. The administrative complexity of managing quotas and complying with regulations can be a challenge for companies, especially SMEs. There is also a risk of industries relocating to countries with less strict environmental regulations.
Advantages and limitations of carbon credits
Carbon credits offer several advantages. They are accessible to any company or individual looking to offset their emissions without being subject to strict regulations. Furthermore, they directly support sustainable projects worldwide.
One of the main risks of carbon credits is greenwashing, where credits are used superficially without achieving real emissions reductions. Additionally, it is often difficult to verify the real impact of the funded projects, which can cast doubt on their environmental effectiveness.
How can businesses use carbon quotas and credits together?
Companies can combine the use of carbon quotas and carbon credits to optimize their emissions management. By complying with the quotas imposed by regulations, they can reduce their GHG emissions through investments in cleaner technologies and improved energy efficiency. If they exceed their emissions cap, they can offset the excess by purchasing carbon credits. This approach not only ensures compliance with legal obligations but also contributes to sustainable projects.
