Agencja Konsultingu Rolniczego – Skuteczne Strategie i Nowoczesne Rozwiązania

In the face of growing pressure related to climate change and the need to reduce greenhouse gas emissions, companies in the agri-food sector are increasingly reaching for carbon credits as a tool enabling the compensation of their CO₂ emissions while supporting sustainable development initiatives such as regenerative agriculture.

In this article, we discuss who buys carbon credits, what factors influence their quality, how the business model works, and other key aspects related to this tool.

Who Buys Carbon Credits and Why?

Companies in the agri-food sector, especially those operating in international markets, are facing increasing regulatory and consumer pressure to reduce their carbon footprint.

Purchasing carbon credits allows them not only to offset emissions but also to build a reputation as socially responsible businesses. Many large corporations invest in carbon credits to achieve their climate neutrality targets while simultaneously contributing to the sustainable development of agriculture.

Companies do this for several key reasons:

Legal Regulations and Market Requirements

Regulatory pressure: In many countries, companies are required to comply with increasingly strict greenhouse gas emission standards. In the European Union, large entities are also obligated to report ESG activities (Environmental, Social, and Governance). Purchasing carbon credits allows companies to offset part of the emissions that are difficult to reduce within their own operations. In some cases, it is the only way to meet regulatory requirements without making drastic operational changes. The differences between insetting and offsetting are discussed in more detail in the next section of the article.
Market expectations: Consumers and investors increasingly expect companies to demonstrate a strong commitment to environmental protection. Businesses that can show they are carbon neutral or reducing emissions through carbon credits can build a positive brand image, which may translate into greater trust from customers and investors.

Climate Risk Management:

Protection against operational risks: Climate change creates real risks for agricultural and food businesses, affecting crop yields, access to raw materials, and production costs. Investments in carbon credits, especially those linked to agricultural projects, can help protect natural resources and improve the resilience of farming systems to climate change.
Reputational risk management: Companies that ignore environmental issues risk negative public and media reactions. Purchasing carbon credits demonstrates that a company is taking responsible steps toward sustainable development, which can help manage reputational risk.

Investments in Sustainable Development:

Long-term benefits: Carbon credits linked to agricultural projects can increase soil productivity, improve the quality of agroecosystems, and promote more sustainable farming practices. Companies can therefore view these investments as a way to secure future resources and stabilize supply chains.
Creating added value: By supporting projects that generate carbon credits, companies can create additional value not only through the sale of their products but also by using carbon credits as a marketing tool, highlighting their commitment to tackling global climate change.

What Determines the Quality of Carbon Credits?

The quality of carbon credits depends on several key factors. First and foremost, the methodology used for measuring and reporting emissions, as well as the carbon sequestration process, is crucial. Projects must meet strict standards, such as those established by the Verified Carbon Standard (VCS), to ensure that their credits are considered credible.

Additionally, the quality of carbon credits depends on their actual effectiveness in reducing emissions, the durability of the implemented actions, and additionality, meaning that the project must deliver climate benefits that would not occur without it.

Ensuring the quality of carbon credits is essential to guarantee that investments in emission reduction truly deliver benefits for the climate and the environment. Below are the most important criteria that determine the quality of carbon credits:

Measurement and Reporting Methodology:

Accuracy of measurements: Projects must use recognized methods for measuring emissions and carbon sequestration that comply with international standards, such as the Verified Carbon Standard (VCS).
Data consistency: It is important that data are collected regularly, verified, and publicly available, which increases transparency and trust in the project.

Additionality:

Climate benefits beyond the baseline: Carbon credits should represent emission reductions that would not occur without the support of the project. This means that activities financed through carbon credits must go beyond what is legally required or what would be implemented for purely economic reasons.

Permanence:

Long-term carbon storage: Projects should ensure that the carbon removed from the atmosphere remains stored for a long period of time. This means avoiding situations in which the carbon could quickly be released back into the atmosphere, for example due to changes in land use.

No Double Counting:

Unique Attribution of Emission Reductions: Carbon credits must be unique and cannot be sold or reported simultaneously within other crediting systems. This ensures that each tonne of CO₂ is compensated only once.

Environmental Sustainability:

Impact on other environmental aspects: Projects should contribute to broader environmental goals, such as biodiversity protection, and must not negatively affect other elements of the ecosystem.

These criteria are essential to ensure that carbon credits are not only a financial instrument but also a real contribution to combating global warming and promoting sustainable agricultural practices.

The Business Model of Purchasing Carbon Credits

Process of purchasing and verifying carbon credits:

Project identification: Companies search for projects that align with their sustainability strategies. These projects must meet specific quality criteria, such as the previously mentioned methodology, additionality, permanence, and the absence of double counting.
Purchase of credits: After selecting an appropriate project, companies purchase carbon credits either directly from project developers or through specialized trading platforms. The credits are then registered in official registries, which guarantees their uniqueness and authenticity.

Project Financing:

Pre-sale of credits: In some cases, projects are financed through the pre-sale of carbon credits. Project developers obtain the necessary funds to implement initiatives such as improving soil management or introducing new agronomic practices that lead to carbon sequestration.
Risk and profit sharing: The business model may include sharing risks between the company and the project developer. If the project is successful, the company may benefit from the increased value of carbon credits, as their prices may rise in the future along with growing demand for high-quality credits.

Integration with Operational Activities:

Strategic use of carbon credits: Companies can use carbon credits in their sustainability reports to demonstrate carbon neutrality or reductions in greenhouse gas emissions. They may also serve as a negotiating element in relationships with business partners, who increasingly require environmental certifications from their suppliers.

Carbon credit purchases by companies in the agri-food sector are a strategic move that allows them to manage risk, meet regulatory requirements, and build long-term value through investments in sustainable development.

Offsetting vs Insetting: Differences, How They Work, and Key Principles

Offsetting - compensating emissions outside a company’s value chain

Offsetting is a process in which a company balances its greenhouse gas emissions by investing in projects that reduce emissions or sequester carbon outside its own value chain. Offsetting activities may include projects such as reforestation, renewable energy production, or improved soil management in agriculture. Examples of offsetting include purchasing carbon credits generated by projects carried out in regions or sectors where the company does not operate directly.

How Offsetting Works:

Purchase of carbon credits: A company purchases carbon credits from projects certified under recognized standards, such as the Verified Carbon Standard (VCS). Each carbon credit corresponds to one tonne of CO₂ that has been reduced or removed from the atmosphere.
Emission compensation: The purchased credits are then used to compensate for the greenhouse gas emissions generated by the company, for example in production, transportation, or logistics.
Carbon neutrality: Through offsetting, companies can declare carbon neutrality, meaning that their total climate impact is balanced by compensation activities carried out outside their direct operational area.

Advantages and Challenges of Offsetting:

Advantages: Offsetting allows companies to compensate for emissions that are difficult to reduce internally by supporting global sustainable development initiatives.
Challenges: Critics of offsetting point to the risk of greenwashing, where companies rely on external offset projects instead of taking real action to reduce emissions within their own value chains.

Insetting - compensating emissions within a company’s own value chain

Insetting differs from offsetting in that emission reduction projects are implemented within the company’s own value chain. This means that the company takes actions to reduce emissions and improve sustainability in areas that directly affect its operations, for example among its suppliers or within production processes. Insetting is therefore more closely integrated with a company’s core activities and may include initiatives such as regenerative agriculture, logistics optimization, or sustainable natural resource management.

How Insetting Works:

Implementation of internal projects: Companies invest in projects that reduce emissions or sequester carbon directly within their own supply chains. An example could be implementing carbon farming practices in farms that supply raw materials to the company.
Emission reductions at the source: Insetting projects focus on long-term emission reductions at the source, which often involves improving operational efficiency, reducing resource consumption, or enhancing product quality.
Creation of added value: Insetting contributes to building a more sustainable supply chain, which can lead to improved financial performance, a stronger corporate reputation, and increased customer loyalty.

Advantages and Challenges of Insetting:

Advantages: Insetting strengthens relationships within the supply chain, contributes to real emission reductions, and is more closely aligned with a company’s business objectives. It can also drive innovation and increase a company’s resilience to climate-related risks.
Challenges: Insetting requires greater resources, stronger engagement, and a long-term strategy. Projects can be more complex to implement and require close collaboration with partners across the supply chain.

Summary of the Differences Between Offsetting and Insetting

Offsetting and insetting are two different approaches to compensating for greenhouse gas emissions. Offsetting involves external compensation through the purchase of carbon credits, while insetting focuses on internal actions within a company’s own supply chain.

Both approaches have their advantages and challenges, and the choice between them depends on a company’s strategy, sustainability goals, and willingness to invest in long-term solutions. In practice, many companies use a combination of both approaches to maximize environmental and economic benefits.

Sustainable Development and Carbon Credits

Carbon credits play an important role in the context of sustainable development. By financing initiatives such as carbon farming, companies can support soil regeneration, increase soil organic carbon content, and protect biodiversity. Carbon farming, which includes practices such as cover cropping, reduced tillage, or the application of organic fertilizers, not only contributes to carbon sequestration but also improves soil quality and increases resilience to climate change.

Conclusion

The purchase of carbon credits by companies in the agri-food sector is becoming increasingly common, and the motivations behind these actions go beyond simply compensating for emissions. It represents a step toward building more sustainable production systems and contributing to global efforts to combat climate change. As regulatory standards and consumer expectations continue to grow, the role of carbon credits is likely to increase, making them a key element of sustainability strategies in the agri-food sector.

WHY DO AGRI-FOOD COMPANIES BUY CARBON CREDITS?