How does the pricing for carbon reduction certificates work?
The prices for carbon reduction certificates differ. The pricing is based on the following criteria:
- Quality standard: The pricing of carbon reduction credits is mainly dependent on the project's quality standard. Carbon reduction projects according to the Gold Standard are usually more costly than projects under the Verified Carbon Standard. This is mainly due to the fact that in addition to the carbon reductions achieved by these projects, social benefits still have to be checked by the external project certifiers.
- Project size: A large wind farm reduces significantly more greenhouse gases at significantly lower monitoring costs per ton than a project in which i.e. 2,000 family biogas plants are built and maintained. This has a corresponding effect on the price of the reduction certificates.
- Project type and location: For certain project types (e.g. reforestation, efficient cooking stoves) there is comparatively more demand and a correspondingly lower available supply of reduction credits. This leads to higher prices. The same applies to project locations - also here, the market prices differ with the geography (e.g. African projects are higher in price than comparable projects in China).
- Amount of emission reduction credits purchased: Volume discounts are also a common market feature in the market for carbon reduction certificates. These discounts can be explained economically: the higher the purchase quantity, the lower the relative transaction costs per ton. This reduces the transaction costs per ton of carbon reduction, which lowers the price for the certificates for higher purchase quantities.