Strategies for Avoiding Lower-Quality Offset Credits

Weaker Methods: Relying on Price or Vintage

In many markets, “cheap” is often synonymous with “low quality.” Very cheap offset credits can indeed be a sign of low quality, especially for newer projects. If a project is selling offset credits for a price below US$1-2 per tonne (i.e., close to the transaction cost of getting a project developed, registered, and verified) then the case for additionality is probably weak; it can be hard to argue that the project truly depended on offset credit revenue for its implementation. However, some offset project types with high environmental integrity can produce GHG reductions at relatively low cost (e.g., industrial N2O destruction or avoidance projects).

The inverse argument – that higher prices correlate with higher quality – is not reliably true either. Truly additional offset projects will have a higher intrinsic cost for generating GHG reductions, and will therefore need to charge a higher price for offset credits to be financially viable. However, there is nothing to prevent non-additional projects from also charging high prices, assuming they can find a gullible buyer. These projects may end up crowding out projects with higher actual costs. Looking only for higher-priced offset credits (without looking at other variables) is therefore not a wise strategy.

The “vintage” of an offset credit can refer either to the year in which it was issued, or the year in which its associated GHG reduction occurred (for some kinds of offset projects, there can be a significant lag between the latter and the former). The vintage of an offset credit does not necessarily indicate anything about its quality. However, older vintages may present a quality concern where the following conditions are true:

  • The offset credits under consideration have remained unsold for a long time; and/or
  • The offset credits are being sold directly by the project developer, where the developer:
    • Did not contract with a dedicated offset credit buyer upfront (e.g., under an ERPA); and/or
    • Has carried forward a significant number of unsold offset credits; and
    • Has continued to operate the offset project for several years despite the lack of offset credit sales.