What are Carbon Credits, and How Much Are They Worth?

Carbon Credits are, in their simplest form, a method to quantify and assign an ownership to one metric tonne of carbon dioxide equivalent (CO2e) which has been removed from the atmosphere in the form of a certificate, or “credit”. 

The issuance of Carbon Credits to quantify carbon capture and assign ownership to this “capture”, then enables the measurable offsetting of an individual or company’s emissions, and facilitates trading of carbon units for those that may have units to spare (or those who generate units for sale). 

Carbon credits are a great example of natural capital financing, which is where financial investment is used to drive nature-based solutions such as tree planting or environmental restoration activities. Carbon credit sales are often now being used to finance land-based projects such as woodland creation or peatland restoration across the UK. 

In the UK at present, there are two established and accredited codes generating carbon credits- the Woodland Carbon Code, and the Peatland Carbon Code. Both codes are well-established quality assurance standards, utilising robust scientific techniques as well as regular 3rd party verification/validation checks of projects to ensure that each unit generated has a high degree of credibility (and value) within voluntary carbon markets. 

This high level of credibility is reflected in market price for UK-generated units listed on the Woodland or Peatland Carbon Codes, with values up to 3.4x higher than competing overseas units. 

As a global market, voluntary carbon markets (VCMs) have been valued at approximately $2billion in 2022.  

Emerging new codes are under development, and these include a UK Saltmarsh Code, Soil Carbon, Hedgerow Carbon, Blue Carbon, and more. 

So how much are Carbon Credits worth to farmers? As a voluntary carbon market, there is a huge degree of variation in the prices paid for carbon credits. In fact, for UK generated Woodland Carbon Code (WCC) units in 2023 (*part year), there was a £37.50 difference between the highest and lowest reported price.  

Graph showing the volume weighted price per PIU (WCC) Nominal terms over years 2021,2022 and part of 2023. The values for 2021 show as £14.93, 2022 as £19.13, and for part year of 2023 as £25.36.

The average unit price for WCC credits in 2023 was £25.36, although unit prices, contractual terms, durations, obligations, and numerous other details vary significantly between each project and each carbon buyer/broker. There are so many variables when looking at voluntary carbon markets and land-based nature solutions, there is no one-size-fits-all approach. 

As such, for any situation where a party is considering a carbon credit sale, it is prudent to seek professional advice and to consider all options before making a long-term commitment. 

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