To buy to sell, or to buy to offset is a good question for people that are just beginning their journey in the carbon market.
This question helps to explain the two available options that carbon credit buyers have.
Enter the carbon market to buy and sell is like entering a commodities market where you buy and sell gold. You are buying carbon credits to hold them for a time and then eventually sell them back to the market, hopefully at a higher price than what you paid. Through this process, you are rewarded with the difference in the price you pay and the price you sell for.
Individuals or businesses buy carbon credits to speculate on the carbon price. They believe that as the world places more importance on the transition away from fossil fuels, the demand for carbon credits will increase and more people will want to buy them, either as an investment, or to offset their footprint (more on this below). As the demand increases, investors believe that the price for carbon credits will also increase. They can then sell their carbon credit holdings to make a profit on the difference in price.
If you are looking at this as an impact investment, or to demonstrate Environmental Social Good (ESG) in your business, then it is important to understand what type of carbon credits you are buying. Not all carbon credits are created equal. If you are involved to help support nature, then you need to make sure that the carbon credits come from a reputable source or registry. For example, MyNativeForest allows people to buy and sell native forest carbon credits that are registered in the NZ Emissions Trading Scheme (ETS). The verification of our credits is government regulated. On some other platforms, the credits you buy may be backed by individual companies and are only recognised there, they may not be traceable, or they could come from pine forests that will one day be chopped down.
Given that the credits you are buying are of the highest quality, when you buy the carbon credits for the purpose of one day selling them, you are supporting nature by providing landowners with a marketplace to sell their carbon credits. This marketplace allows for liquidity and transparency for forest growers, giving them confidence that if they go through the very hard process of growing a native forest, they will be rewarded. The larger the market is, the more incentive a landowner has for choosing to grow a native forest over an alternative land use.
You are incentivising and supporting the change that you want to see.
Buying carbon credits to offset them is the other option you have when joining the carbon market. To understand this, it first requires a brief explanation of what offsetting is.
Everybody generates carbon when going about their daily life, some people more than others. But on average, a kiwi generates about 7.5 tonnes of carbon every year according to the Ministry of Environment. The process of offsetting means you retire them from circulation, so that the carbon is removed from the system and locked up for good. By buying the equivalent amount of carbon to what you generate, then offsetting it, you are essentially carbon zero and not having a negative impact on the world, in relation to carbon.
When you enter the carbon market with the intention of buying to offset, you are buying carbon credits to retire them from circulation. For some people, having a positive impact on the world by undertaking this process is more valuable than earning money through carbon credit investment.
Individuals and businesses buy carbon credits to offset their carbon footprint, which, as mentioned above, is the amount of carbon they generate over a given period of time. They believe that in order to be a socially responsible person or business, they should live or operate in a way that is not detrimental to our environment. Being able to enjoy the world around us comes with a price tag, as we live on a beautiful blue rock with finite resources. For people looking to offset carbon credits, it is important to find a carbon credit that is credible and they believe in.
Something that holds true for both buying to offset, or buying to sell, is the quality of the carbon credit. So to reiterate, it is important to make sure that the carbon credits come from a reputable source or registry.
It is also important to make sure that the carbon credits you purchase to offset are making the change in the world you want to see. For example, by buying from MyNativeForest to offset, you are supporting New Zealand native forests, as you are retiring the carbon credits that relate directly to the carbon stored in their trees.
Other options could be carbon credits that are generated from communities transitioning to green energy through solar or wind farms. These options are satisfactory, but can sometimes be harder to quantify and understand the environmental impact when you dig into them.
Lastly, you need to make sure that the organisation you are retiring through is legitimate. For example at MyNativeForest, our carbon credits are NZUs held on the NZ Emissions Trading Register (ETR) that is managed by the New Zealand government. So when we retire them, we are confident that they will not go back into circulation.
By offsetting with MyNativeForest you are supporting nature in a similar way as people buying to sell., You are supporting nature by providing landowners with a marketplace to sell their carbon credits once they are generated, but you are also going one step further by canceling your own carbon footprint, and ensuring that the supply of carbon credits is decreasing. Doing so makes carbon credits more valuable and increases the incentive for landowners to take part. If you do it for native forests, you will help to make native forests a more valuable use of land.
At MyNativeForest we make buying to sell, and buying to offset very easy. You can rest easy knowing that you are doing the right thing!
We would love to build out this article with more information and benefits of taking part in the carbon market. It is an emerging space, so if you have any suggestions on how to improve, please reach out to let us know!
The Emissions Trading Scheme is New Zealand's key tool for reducing harmful atmospheric gas levels to meet international climate change response goals. Find out how and why.
Learn about carbon sequestration rates under the Emissions Trading Scheme (ETS) and their Carbon Credit earning potential, per hectare.
The New Zealand carbon market is a big and relatively new space. This blog will cover the NZ ETS, market functions, carbon credits, and the different participant interactions in the NZ carbon market.