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A Brief History of Carbon Credits
The concept of monetizing global climate action at scale by paying for title to the ‘result’ of an independently verified emission reduction or removal was born out of the Kyoto Protocol in the 1990s through the UN Clean Development Mechanism (CDM)[15].
The CDM was designed to enable a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol to finance an emission-reduction project in developing countries. These projects generated saleable Certified Emission Reduction (CER) credits, each equivalent to one tonne of CO2, which could be counted towards meeting Kyoto targets. The mechanism was the first global, environmental investment and credit scheme of its kind, providing a standardized emissions offset instrument.
CERs were fungible with the EU’s permit-based Emission Trading Scheme (EU ETS), until both systems struggled with excess supply, resulting from over-permitting in the EU ETS and low targets under the Kyoto Protocol. As part of the solution for this, CERs have not been permitted in the EU ETS for many years. The EU scheme has now been overhauled, leading to record high prices and the CDM is due to be transformed under Article 6 of the Paris Agreement, which enables trading between nations. The latter is currently limited to pilot programmes under bilateral agreements but is expected to grow and follow many of the best practices - and indeed standards - developed in the voluntary carbon market. Increasingly, other compliance schemes are utilising the voluntary market, the closest example being CORSIA, the global aviation sector offsetting scheme.
The creation of the CDM firmly established the principle of a global price on carbon - and provided one via the secondary market in CERs - leading to private sector organisations, and individuals, that had no regulatory need, using the credits to voluntarily offset their emissions (that is, retire an equivalent tonnage of CERs to their carbon footprint, typically annually). This was challenging as the infrastructure was designed for countries, and was executed through bespoke contracts, for example between bank’s carbon trading desks and their corporate clients.
As a result of this, civil society groups, project developers and buyers wanted to set higher levels of integrity than they believed CDM was delivering, increase the focus on driving additional non-carbon sustainable development ‘co-benefits’ and innovate new methodologies for a wider range of sequestration and reduction activities. New voluntary standards emerged, namely the Gold Standard, established by WWF and Verified Carbon Standard (VCS, managed by Verra) established by WBCSD (the World Business Council for Sustainable Development).
As the market scaled over time, robust infrastructure to support that growth has been implemented on a commercial basis, primarily Registries: the databases that track the project lifecycle, maintain records, such as third party verifications, and in which Carbon Credits (also known as VERs (Verified Emission Reductions) are issued (each with a unique serial number), are traded and ultimately ‘retired’ as they are used to offset the unavoidable emissions of corporates and individuals.
However, the market is fragmented and predominantly ‘over the counter’ (OTC); driven by consultants, brokers and project developers selling directly to end buyers. Whilst some exchanges have been created, they are still largely used by brokers who want access to additional credits to on-sell, rather than end buyers.
The purchase process for buyers has been a significant hindrance to the market’s growth. To have confidence in the process they need to become experts in a complex market, creating a significant overhead. This detracts from the primary purpose of the activity; to support climate mitigation, delivering a tonne of carbon sequestered or avoided.
Of course, knowing that the credits you buy come from a project that was delivered in line with best practice is vital. However, the correct combination of standards and third party certification can deliver this. By focussing on other aspects as part of the purchase decision, a mechanism for adding greater margin for intermediaries was created as certain types of project became more ‘fashionable’ at the expense of others. This also led to buyers changing their portfolios of credits every time they came to market, which created challenges for project developers to achieve a consistent revenue stream over the duration of the project’s lifetime. With no liquid secondary market and clear pricing, they are required to spend on marketing or discount their credits - often significantly - to brokers and retailers, to ensure a sale.

Focus on high quality Carbon Sequestration

Carbon Credits can be issued from projects that reduce emissions - for example replacing fossil fuel-derived energy with renewable energy . They can also be derived from activities that remove or sequester CO2 from the atmosphere, most obviously from tree planting, but also from new technologies such as direct air capture. Whilst all credible solutions are needed given the vital need to address the climate crisis, JustCarbon will focus purely on high-impact, nature-based sequestration activities , using its platform to support the investment of billions of dollars needed to maintain and build the World’s forests and other natural carbon sinks, including the growing area of marine-based sequestration (sometimes referred to as ‘Blue Carbon’) . Quality and rigour will be ensured by only allowing a defined set of activities to create JCRs, which must follow best practice third party standards.
Governments can focus on driving down emissions across their economies, and corporations can implement Science-Based Targets to reduce their operational emissions. How the JustCarbon Removal Unit (JCR) will help to achieve this is discussed in detail later in this document.
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