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CO2e Certificates, Carbon Markets & Market Value
CO2e Certificates, Carbon Markets & Market Value

What are Co2e certificates and what is the market price shaped by?

Daniel Darcy avatar
Written by Daniel Darcy
Updated over a week ago

CO2e Certificates

Typically on the Voluntary Carbon Market (VCM), 1x CO2e certificate or credit is the equivalent to 1,000 kilograms or 1 tonne of CO2e or equivalent GHGs (Greenhouse gases) reduced. Which are emissions that would have otherwise been dispersed into the atmosphere without intervention. A standard that Agreena follows when quantifying the equivalent of how much GHGs were reduced from emissions. However, it is important to note that on the VCM, the quality of the CO2e reduction per certificate can vary, directly affecting the market value. For an in-depth take on what a carbon credit is, check out this page.

That is because the standards for measuring CO2e (CO2 Equivalent) on the VCM are continuously changing in accordance with advancements in the scientific calculations behind measuring CO2e. This means that the third-party bodies behind the calculation and verification processes in the VCM must adapt to the most prevalent standards, as the market constantly transitions. Exemplifying that not all CO2e certificates represent the same amount of actual carbon reductions, as the methodology behind measuring carbon can vary quality-wise, which in turn, affects the market value.

The CO2e certificates that Agreena certifies are quantified on a yearly basis and issued shortly after the harvest year is closed. These certificates are verified in accordance with the carbon standards of multiple independent verifiers on the VCM. Agreena's certificates are calculated in accordance with the Cool Farm Alliance Tool and their calculations, which uses the IPCC's (UN's Intergovernmental Panel on Climate Change) guidelines to estimate emissions. Agreena verifies these emissions using an in-house Data Science team that uses remote sensing satellite imagery, in conjunction with the ISO standard 14064-2, and the Verra standard VM0042 VCS (Verified Carbon Standard). If you are wondering what is required of Agreena to make a high-quality carbon credit, check out this page.

The Voluntary Carbon Market (VCM)

It is important to distinguish that Agreena's CO2e certificates operate on the VCM, as opposed to the compliance carbon market. The VCM is not as standardised or organised as the compliance market, which is why the VCM and the associated certificates fluctuate vastly in transparency, quality and accountability from project to project. It is, therefore, necessary to ensure that the standards and quality behind the certificates are understood, in order to evaluate their potential market value fairly. As there are even vastly different types of projects operating in the VCM. For an in-depth take on how reductions are accounted for on the VCM, check out this page.

The Compliance Market

The compliance carbon market is defined and monitored by the regulatory systems established by either an international, national or regional governing body. In opposition to the VCM, these regulatory bodies impose quota reductions on business entities that pollute significantly. Therefore the compliance market does not generate certificates or credits. Business entities are simply limited to certain CO2e emitting thresholds, which they then can trade with other business entities if they are over or under. This means that the accountability, trading ability and even the market value is highly regulated. Consequently, certificates on the VCM are not comparable or interchangeable with the compliance market, both in terms of the standards, the quality and the market value of certificates.

Market Value

The market value of CO2e Certificates on the VCM is primarily subject to supply and demand, as it is entirely voluntary to purchase and sell these certificates. The demand for CO2e certificates, and as a result, the market value of CO2e certificates, is typically subject to the transparency and quality of the verification standards that the certificates are built upon. Hence, it is decisive when determining the market value of CO2e certificates, to contemplate the processes and standards behind the verification of said CO2e certificates, as calculating the market value of a CO2e certificate is complex.

Therefore, as long as the demand for CO2e certificates continues to grow alongside their quality and the standards behind them, so will the market value! - For a deeper dive into the role of carbon standards on the voluntary carbon market, check out this page.

If you just couldn't get enough of this article and crave an even deeper perspective into the Voluntary Carbon Market, check out VCMPrimer!

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