There are various approaches to credit a country for its achievements in reducing greenhouse gas emissions. Below, five approaches are compared, to help understand which approach a country can use. DIFFERENT APPROACHES TO CARBON CREDITING OACHES TO WHAT IS CARBON CREDITING economic modelling, comparing scenarios “before” and “after” the intervention. Lastly, a baseline can be A country can develop and host a range of measures that represented by sectoral or jurisdictional targets that have reduce harmful greenhouse gas emissions. Such measures been surpassed. In this case, crediting will be applied to are commonly known as mitigation activities and may ING the difference between the initial targets and the factual vary in scale and impact ranging from large scale, such performance of the mitigation activity. This crediting as a solar energy plant, to micro scale, such as distribution approach encourages and rewards increased ambition in of energy-efficient cookstoves to individual households. mitigating greenhouse gas emissions. If emission reductions generated through such interventions fulfill a set of specific criteria, they can be converted PAYMENTS FOR CARBON CREDITS into carbon credits, which can be sold and exchanged internationally through an Emission Reduction Purchasing Payments for carbon credits can be provided in two ways: or its acheivements in reducing greenhouse gas emissions. Agreement (ERPA). The process of converting emission reductions into carbon credits is known as carbon crediting. using concessional climate finance (results-based climate finance) or through carbon market mechanisms. nderstand which HOW CARBON approach CREDITING a country WORKS can In the first use. case, the buyer supports the host country in reaching or exceeding their NDC targets by agreeing to To quantify the amount of emissions that have been purchase carbon credits that will be generated in future. avoided, the mitigation activity is compared to a baseline. By promising to pay for the results, such an ERPA helps The choice of the baseline is determined by the nature reduce investment risks and catalyze finances from other sources, such as the private sector. FIVE CARBON CREDITING of the mitigation activity and business-as-usual scenario. For example, launch of a wind power project will help Alternatively, the country may opt to trade carbon credits APPROACHES avoid X metric tons of CO2 emissions by providing energy internationally, using available carbon market mechanisms. from a renewable source, instead of coal that would have am In this case, the country might benefit from selling carbon been used otherwise. This is an example of a technology- credits at a market-based carbon price that is higher than based baseline, where the mitigation activity comprised the cost of generating those emission reductions. However, Credited mitigation activities can be individual replacement of a polluting technology with a cleaner alternative. In case the emissions are mitigated by when carbon credits are sold, only the buyer can use these emission reductions towards their NDC compliance. investment projects (project-based crediting), introducing a new policy, the baseline can be set through programs of projects (programmatic crediting), or policies (policy crediting). Crediting can also ocal private entrepreneurs are using an be used to reward a country’s achievement beyond its sectoral or jurisdictional targets (sectoral or jurisdictional crediting). Which crediting approach to choose depends on the nal objective and circumstances of a particular country. Each approach has its strengths and weaknesses and comes with di erent methodologi- TYPES OF CARBON CREDITING Credited mitigation activities can be individual investment projects (project-based crediting), programs of projects (programmatic crediting), or policies (policy crediting). Crediting also can be used to reward a country for going beyond the initially set sectoral or jurisdictional targets (sectoral or jurisdictional crediting). Which crediting approach to choose depends on the objective and the context of the mitigation activities. Each approach comes with different methodological requirements and different strengths and weaknesses. CREDITING STRENGTHS/ OBJECTIVE METHODOLOGY APPROACH WEAKNESSES Project-based Support individual Baselines and Monitoring, Relative simplicity investment projects Reporting, Verification (MRV) based on Allows for pure private technology sector transactions Limited opportunities to scale up; risk of leakage* and perverse incentives Programmatic Support a larger number of Baselines and MRV based Relative simplicity similar projects often small on technology and micro scale (including Allows to scale up through household level) within a replication of similar program Often accompanied by projects an incentive program Allows to reach small- and that transforms carbon micro-scale activities revenues into other incentive payments Risk of leakage and perverse incentives Policy Support a policy Baselines and MRV based Large scale intervention such as an on economic modelling energy efficiency standard High transformative or energy/carbon pricing impact policies High complexity High project preparation costs Limited role of private sector in transaction (private sector still plays a key role in implementing incentivized mitigation activities). Sectoral/ Support overachievement Sectoral/jurisdictional Large scale Jurisdictional of sectoral/jurisdictional baseline and MRV mitigation benchmarks/ Low risk of leakage and targets perverse incentives Crediting only possible on an aggregate level High dependency on external factors (high delivery risk). *Note: carbon leakage occurs when an emissions-reduction policy, such as a carbon price, inadvertently causes an increase in emissions in other jurisdictions that do not have equivalent emissions-reduction policies.