How to Save on Carbon Credits: Generate Your Own Credits or Buy with Future Contracts?

Carbon credits savings

Generating Your Own Carbon Credits: A Sustainable and Long-Term Alternative

One way to save on carbon credits is by generating your own through internal or external projects. Your company could save up to 80% over 15 years simply by generating its own carbon credits. In addition to being less costly, your company can also market its project as directly taking action to protect nature, which will undoubtedly give you a competitive edge.

But how does generating your own credits work, and how can it lead to savings?

Buying credits subjects the company to market prices, which have been gradually increasing. On the other hand, hiring a specialized carbon credit company, such as Climate Care Taker, can substantially reduce your costs. Here’s an example:

Let’s say your company needs 60,000 carbon credits to offset carbon emissions each year. If we consider that each credit costs around $80, it would require an investment of $4.8 million to buy credits to offset the carbon footprint.

Alternatively, by hiring Climate Care Taker, we would find land for your company to start a Forest Conservation Project. In the case of the Amazon, for example, foreign legal entities cannot own land in the forest, but they can own the rights to carbon credits derived from that land (through a bilateral contract). Thus, your company can pay $1.2MM to acquire the rights to land that will generate 60,000 carbon credits.

In addition to the acquisition cost, your company will pay another $1 million for implementation and certification (a cost that won’t recur every year).

In the first year, your company will save $2.6MM (or 55%). Over the next 15 to 20 years, the savings will be even greater, as there will be no land acquisition or land rights costs. Over a 15-year period, the savings will reach a staggering $55 million, or 77.5% in savings.

By taking this approach, the company not only avoids the cost of buying credits on the market but also gains the opportunity to sell excess credits to other companies, becoming a supplier in the carbon market.

Benefits of generating your own credits:

• Long-term cost reduction: After the initial investment in infrastructure and certification, credit generation becomes a source of savings and, in some cases, even revenue.

• Independence from the carbon market: The company gains greater control over its sustainability strategy and doesn’t have to rely on price fluctuations in the credit market.

• Strengthening corporate image: Investing in internal sustainable initiatives strengthens the company’s reputation with investors, consumers, and partners.

  
  

Buying Credits with Future Contracts: Protecting Against Volatility

For companies that need to continue buying carbon credits on the market, an effective way to save is through the purchase of future contracts. Similar to the concept of hedging in commodity markets, buying future carbon credits allows companies to lock in the price of credits for a future date, protecting themselves from price increases over time.

How do future contracts for carbon credits work?

Companies can negotiate contracts that guarantee the purchase of carbon credits at a fixed price for future use. This means that, regardless of how much the price of carbon credits rises in the market, the company will still pay the agreed-upon price in the contract.

This approach is ideal for companies with a long-term carbon neutrality strategy that want to reduce price uncertainty in the future, allowing for more accurate financial planning.

Benefits of future contracts:

• Savings in case of price increases: If the value of credits rises, the company that bought future contracts benefits by paying the pre-agreed price, which is usually lower than the market price.

• Financial planning: By locking in the price of credits, the company can better plan its long-term operational costs, avoiding surprises with carbon price volatility.

• Security and predictability: Future contracts offer greater security, especially in markets with significant price fluctuations, such as the carbon market.

  
  

Comparing the Two Solutions

Both strategies – generating your own credits and buying credits through future contracts – offer efficient ways to save on carbon credit costs, but they are better suited for different business situations:

• Generating your own credits is more suitable for companies with the financial capacity to invest in long-term projects and who want to gain independence in the carbon market.

• Buying credits with future contracts is an ideal solution for companies that need a more immediate approach and want to protect against price fluctuations without committing to investing in complex projects.

  
  

Interested in these or other smart alternatives? Contact us for a no-obligation quote.