Why do people buy carbon credits?

To conclude our series, let's take a closer look at the demand side of the carbon market. This video explores how and why companies and other groups buy carbon credits. 

The main source of demand for carbon credits comes from companies, government entities, and other organizations seeking to compensate for, or offset, their emissions. By purchasing carbon credits, these groups can subtract from their overall emissions the amount of CO2 represented by the carbon credit. If they buy enough credits to cancel out their overall emissions, they can achieve net zero emissions. However, it’s important to note that offsetting is a supplement to, not a replacement for, direct emissions reductions through things like improving efficiency and using clean energy.

There are online marketplaces where buyers can shop for carbon credits. Different credit types often command different prices. The biggest factor in price is how durable and reliable the credit is likely to be - which can be influenced by the type of project (forest vs. soil; improved management vs. delayed harvest; etc.) and its location, among other things. If the carbon storage represented by a credit is expected to last a long time with a low likelihood of premature release, it will sell for more. Typically, a landowner whose property has generated carbon credits will not be directly involved in the marketing or sale of credits–this work will be outsourced to the project developer. However, the landowner has a stake in the process, as their returns from the project are affected by the price the credit sells for.