Trade Carbon Credits a Good Investment
In recent years, investors have been looking for ways to invest in ways that align with their values. That’s particularly true for individuals that prioritize environmentalism and sustainability. One way to do so is by investing in carbon credits, which allow people to offset their ecological impact through investments that pay for projects that reduce greenhouse gas emissions. These projects are called carbon offsets, and they can be bought and sold through an open market. The answer to “are trade carbon credits a good investment?” depends on the individual’s unique financial circumstances, but it’s generally considered an option worth considering.
There are a few different ways to get involved in the carbon market, but exchange-traded funds (ETFs) offer the easiest and most accessible entry point for retail investors. These ETFs track the performance of carbon-credit markets, and anyone can purchase them through their brokerage account. Another option is to buy shares of companies that buy or sell trade carbon credits, or to trade carbon-credit futures through a trading platform.
Carbon credit prices vary significantly depending on the type of project and its underlying methodology. According to a report published by S&P Global Platts, the price of a carbon credit can range from a few cents per metric ton of CO2 emissions for afforestation or reforestation projects to $100 or more for tech-based removal projects like direct air capture and carbon capture and storage (CCS).
Are Trade Carbon Credits a Good Investment?
Some of the main factors that determine a credit’s price are its vintage (year it was issued) and delivery date. Credits can also be differentiated by the type of project, the type of offset it qualifies for, and whether it’s a voluntary or mandatory project. Lastly, there’s the issue of whether it provides additional social and environmental benefits, or “co-benefits,” in line with the United Nations Sustainable Development Goals.
The market for carbon credits is made up of end buyers, who are businesses — or even individuals — that have committed to offsetting all or part of their GHG emissions. These end buyers can choose to work with a number of different companies that manage projects, sell credits or e-passes on their behalf. These include Native Energy, a B Corp Best for the World Company and a public benefit corporation that offers a variety of project options, terrapass, which provides a plug-in software app that allows online merchants to offer their customers carbon credits, or Carbon Checkout, which has integrated with a number of retailers to allow them to provide customers with carbon-offset options during checkout.
Traders and finance players tend to prefer non-standardized products as they can more closely examine the specific characteristics of each underlying project. Meanwhile, end buyers may prefer non-standardized products because they provide them with the ability to match the quality of their purchased credits with their own offsetting needs. In some cases, they can even use these projects as their own internal benchmarks for determining the price of other projects that are not yet available on the market.