How to Buy Carbon Credits [Step-by-Step Guide]

Several years ago, I began to get concerned about my carbon footprint. I traveled frequently and realized that I was responsible for many carbon emissions. However, my work requires frequent travel, so I cannot avoid taking flights and driving long distances.

Eventually, I learned that I could purchase carbon credits (also called carbon offsets) to reduce my emissions. While this may not be as effective as not creating greenhouse gases in the first place, it’s the best thing I can do for the environment.

In the past, purchasing carbon credits was complicated and confusing. However, numerous carbon credit marketplaces make it very easy to buy your own carbon offsets. It is even possible to invest in carbon credits.

Read on to learn more about buying carbon offsets.

Purchasing Carbon Credits To Offset Your Emissions

Step 1: Determine Your Carbon Emissions

You must calculate the carbon emissions you or your business are creating. This way, you will know exactly how many carbon credits you need to buy. There are several ways to calculate carbon emissions, but the Greenhouse Gas Protocol (GHG Protocol) is the industry standard. Over 90% of Fortune 500 companies use it to calculate their carbon emissions.

Instead of offering an online calculator with limited options, GHG Protocol offers many different worksheets. These include calculations for companies in various industries and municipalities. I used the Emissions Factors From Cross-Sector Tools worksheet on the Calculation Tools page.

All of the worksheets are formatted as Excel sheets. This makes it easy to do calculations using Excel’s built-in functions. This will save you a lot of time and result in more accurate results.

Once you have calculated the greenhouse gas emissions you need to offset, you are ready to buy carbon credits.

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Step 2: Register On a Carbon Credit Marketplace

There are several ways to purchase carbon offsets. You can buy them from the company running the carbon offsetting project, from a broker, or from a marketplace. I have always purchased my carbon offsets from a marketplace.

While some people prefer to buy carbon credits directly from the project, I don’t. This is primarily because extensive research is required to identify worthwhile projects individually. You don’t have to do this with a reputable marketplace, as they have already vetted the projects they list.

Another popular option is to use a broker. However, carbon credit brokers often charge huge markups, which are usually significantly larger than the fees charged by marketplaces.

The marketplace I use is called ClimateTrade. It’s one of the most well-established and reputable marketplaces on the Internet. It vets each project it lists carefully. ClimateTrade even uses blockchain technology so that you can ensure your money ends up with the intended organization.

Signing up with Climate Trade is quite easy. All you have to do is enter standard info like your email address, password, and name. The platform will send you a confirmation email for security reasons.

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Step 3: Search Through Available Projects

After creating an account on a marketplace, it’s time to browse through the marketplace’s listings until you find a project you like. Large marketplaces may have many different projects available anytime, so you may want to filter the search results to save time. Common search filters include certification, price, country, and industry. Alternatively, you might want to simply browse through listings if you aren’t sure what you are looking for.

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Searching For a Legitimate Certification

One of my favorite ways to filter search results on a carbon offset marketplace is by certification. This is because I always ensure that any project I help fund will actually work to reduce greenhouse gas emissions. Unfortunately, not all carbon offsets are created equal. there are unscrupulous companies that sell carbon offsets that do not actually help you reduce your carbon footprint.

Thankfully, it is easy to determine whether a project is legitimate. You simply need to check whether it has a certification from an established verifier.

According to the Massachusetts Institute of Technology, the established verifiers include the Gold Standard, Verified Carbon Standard, and Climate Action Reserve. These organizations will evaluate projects to ensure that they are effectively working to reduce the carbon footprint of the people who purchase their credits. Only projects that meet their standards will get certified.

Searching by Industry

I also like to filter search results by industry. This is because I tend to support projects that involve planting trees. If you want to support a particular cause, you may want to use this filter along with the certification filter.

Using both filters at once will enable you to narrow the results to just a few projects, even on the largest marketplaces.

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Step 4: Research the Project That You’re Interested In

After identifying a project that interests me, I do in-depth research into the project’s operations. I pay particularly close attention to the project’s location, whether carbon offsetting is the focus of the operation, the year the credits were produced, and the background of the company selling the credits.

I live in the United States, and most of my emissions have been released into American environments. To help offset my local carbon footprint, I look for projects based in the United States. However, some people purchase carbon credits from operations in highly polluted countries like China.

Many companies make carbon offsetting a small part of their operations. However, I look for organizations that are dedicated to helping the environment. This way, I can be sure that a company won’t take the money I sent them for carbon credits and use it to fund operations that harm the environment.

I also look at the year the credits were produced. I try to find credits issued recently because my carbon footprint only expanded in the last few years.

Finally, I look into the background of the company selling the credits. Some companies that have harmed the environment sell carbon offsets to try and save face. I avoid supporting these companies.

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Step 5: Purchase the Right Number of Credits

Now that you’ve identified a project you want to support, it’s time to purchase your credits. Keep in mind that carbon offsets are generally sold in one-ton increments. However, different listings may use varying measurements. Be sure to double-check this when you are preparing to purchase your carbon offsets.

Even if I think I remember the result of the emissions calculations from Step 1, I double-check to be sure I have the correct number. Since my goal is to be carbon neutral, it is important to me that I offset all my greenhouse gas emissions.

Step 6: Obtain Your Carbon Offsetting Certificate

While this is optional, I always like to get a carbon offset certificate after I purchase carbon credits. I generally print out these certificates and put them on the walls in my living room. They make great conversation pieces when I have guests. Through these conversations, I have even been able to inspire several other people to live a carbon-neutral lifestyle.

If you are purchasing carbon credits for your business, I strongly suggest getting a certificate. You can put the digital certificate on your website and print a paper certificate to put in your place of business. This will help you show potential customers that you care about the environment.

See Related: Best Carbon Accounting Software Options

How to Invest in Carbon Credits

Like many intangible assets, investing in carbon credits directly is impossible. While you can buy carbon credits yourself, you cannot resell them unless you are a broker. Thankfully, there are two methods that you can use to invest in carbon credits.

The more complicated method is to invest in carbon futures. This means that you will enter into a contract with a third party to trade carbon credits at some point in the future. I have never done this, and I do not recommend this unless you are an expert futures investor. This method is complex and time-consuming. Also, investing in carbon exchange-traded funds (ETFs) accomplishes the same thing much more easily.

Investing in a carbon ETF means having a professional invest in carbon credit futures for you. This method is far easier and quicker. It is also more accessible, as a variety of popular platforms offer carbon ETFs.

See Related: Best ESG ETFs to Invest in Today

Investing in Carbon Exchange-Traded Funds

Step 1: Open a Brokerage Account

If you plan on investing in carbon ETFs, you must open an account with an investment brokerage. Remember that many popular investment apps will not let you invest in ETFs. Instead, you may need to go with a more traditional brokerage. I use TD Ameritrade because it is easy to use and offers a wide selection of ETFs. They also do not charge a fee for ETF trades.

Opening an account with a brokerage will require you to input much personal information. Brokerages require this to reduce fraudulent trading. You must provide your name, date of birth, address, Social Security number, and financial information. Once you set up your account with your chosen brokerage, it’s time to review their ETF options.

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Step 2: Choose Your Carbon ETF

You can find the carbon ETFs offered through your brokerage through their commodity-based ETFs. If your brokerage offers several commodity-based ETFs, you may want to filter results further by searching for “carbon.”

Once you have found the carbon ETF listings, you can inspect them to determine which you want to invest in. I look for several things in an ETF, including the issuer, the amount of funds under management, and the three-month return.

One of the most important things to look for in an ETF is a well-established issuer. I look for well-established investment banks. Some smaller ETFs, including some carbon credit ETFs, are issued by tiny operations with no verifiable track record.

I also consider the amount of funds under management. This shows you how popular the fund is. Of course, this does not necessarily mean the fund will be profitable.

Finally, I consider the fund’s track record. One of the most common metrics for evaluating an ETF is its profitability over the last three months. I also consider how the fund has performed over the last few years. As carbon ETFs are quite new, some funds have only been around for months. You may want to avoid these, as you cannot assess the fund’s track record.

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Step 3: Purchase Shares In Your Chosen ETF

Now that you’ve identified the ETF that you want to invest in, it’s time to actually purchase the shares. The share prices for ETFs vary widely, so it’s best to have a dollar amount you want to invest rather than a number of shares in mind.

If you are just starting with carbon ETFs, making a relatively small investment is a good idea. This will give you time to learn about the market before you invest much money.

Purchasing shares in an ETF is very similar to purchasing stocks. You must input the symbol for your chosen ETF so your brokerage can look it up. You will see how much each share trades for and how it has performed so far.

When you actually make your purchase, you can specify things like a stop-loss limit (just as you would with stocks). This will ensure that your ETF shares are automatically sold if the price drops to a certain point.

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