Carbon Project Lifecycle
Not all Carbon Credits are created equal, but they all go through similar process from origination and issuance to retirement. Following are some general steps in the lifecycle of Carbon Credits.
- Project Development
- Validation and Registration
- Monitoring and Verification
- Issuance
- Retirement
Project Development
The project development stage is the first step in the process of carbon credit creation. The process starts with the identification of carbon reduction or removal project or activity by the project proponent (PP). The PP is any entity that identifies a carbon mitigation project beyond a business-as-usual scenario. The PP then designs a comprehensive document that includes the description of activities the project will undertake, the emission reduction potential from those activities, the methodology application and the monitoring protocol that will be followed. This document is known as the Project Design Document (PDD). The methodology is basically a protocol that developers follow to quantify the project’s emission reduction potential. Some examples of methodologies include methodologies from standards like GCOM, GCC, Verra, Gold standard, and Pure.earth .
Today there are over 170 project types that can all be categorized into the following major categories:
- Renewable Energy
- Household and Community
- Chemical/Industrial
- Energy Efficiency
- Waste Handling and Disposal
- Agriculture
- Transportation
- Forestry and Land Usa
- Carbon Capture
Validation and Registration
Once a project has been designed and the PDD has been created, the next step is to Validate it by third party organizations called Validation and Verification Bodies (VVBs.) Validation is necessary as it ensures compliance with the selected methodology and standard requirements. The VVB at this stage conducts a thorough review of the PDD which includes projected emissions reduction, baseline and additionality assumptions and project plans etc. Validation is an important step in ensuring the quality of future credits.
Once the project has been successfully Validated, the VVB issues a Validation Report and a Validation Statement. The documents confirm the compliance of the projects with the selected standard and methodology. After this, the project can proceed to submitting the project for registration with the selected standard.
Monitoring and Verification
Once implementation of the project begins, it enters the monitoring stage. At this stage, the developers collect data from the project activity over a reporting period. The approved methodology needs to be followed in monitoring to accurately report emission reduction/removal.
The emissions reduction/removal data is submitted in the Monitoring Report at the end of the reporting period. The Monitoring Report is audited by the third party Verifiers to ensure that the reporting data has been calculated and reported according to the approved methodology. This step often involves an on-site visit to confirm the data reported is accurate. Once the verification is successful, only then can credits be issued.
Issuance
After successful verification, the relevant registry issues carbon credits to the project. Each credit represents 1-ton CO2e emissions reduction or removal and is accompanied by a unique serial number. The serial number ensures the credit can be tracked/audited and be linked to the project and its relevant emission reduction/removal.
Sale and Retirement Once Credits are issued to the project, they can then be sold in the Voluntary Carbon Market (VCM). Technically credits can be retired as soon as they are issued, but in some cases, they remain with the developers for an extended period and change hands multiple times before retiring. During these transactions, it is the relevant registry that tracks these transfers and updates ownership information. In terms of Sale, they can be sold in various way depending on the buyer preferences:
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Direct Sales: Buying credits directly from the developers. Requires extensive due diligence but buyer gets the benefit of a long term purchase agreement and brand story telling etc.
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Intermediary: Buyers source credits through third parties to ensure their integrity and alignment with their sustainability goals.
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Marketplace: Online Marketplaces list different types of projects available on their platforms. Buyers can choose credits based on price, nature, geography, and standard etc.
