What is a carbon credit and how is it created?

Today, important issues such as climate change and global warming are being addressed, and various solutions are being developed to combat them. The increasing global environmental concerns and efforts to mitigate climate change have brought the principle of sustainability to the forefront. In this context, financial instruments like carbon credits play a vital role in enhancing environmental responsibility among businesses and individuals. Carbon credits emerged as a solution for businesses that exceed greenhouse gas emission quotas set by international agreements. While carbon credits are more frequently used by companies, they are also suitable for individual use. Individuals can purchase carbon credits to offset their own carbon emissions, contributing to projects that reduce greenhouse gas emissions and generate environmental and social benefits.

When examining how carbon credits are generated in the market, it is clear that they go through several stages. The first stage is identifying a project that will generate carbon credits. These projects typically include activities such as renewable energy generation, increasing energy efficiency, forestry projects, or reducing carbon emissions in industrial processes. These projects focus on reducing greenhouse gas emissions or increasing carbon sequestration. After the project is selected, its potential for carbon reduction or sequestration is evaluated according to a set of standards and guidelines. International standards set various criteria to ensure the sustainability and carbon benefits of the project. The project’s compliance with these standards is documented. Once implemented, the project will have the capacity to reduce or sequester greenhouse gases. These reductions or sequestrations form the basis of carbon credits. The organization running the project measures and certifies these reductions or sequestrations.

Carbon credits are generally expressed in terms of CO2 equivalents. This means that the amount of greenhouse gases reduced or sequestered by the project is calculated as CO2 equivalents, representing the global warming potential of different gases (methane, nitrous oxides, etc.). After determining the CO2 equivalent, carbon credits undergo a certification process and become tradable on international carbon markets.

To illustrate this with an example, consider a renewable energy plant producing 40 MW of electricity. If this electricity were generated from fossil fuels rather than a renewable energy plant, a certain amount of greenhouse gases would have been released into the atmosphere. The expected emissions are calculated in CO2 equivalents, and this calculated value is considered a negative emission, meaning it has a positive environmental impact by reducing the amount of carbon released into the atmosphere. This negative emission is certified as a carbon credit. Consequently, the renewable energy project receives carbon credits corresponding to the amount of negative emissions, which can then be bought and sold in international carbon markets.

Carbon Credit Markets and Certification Bodies

The concept of carbon credits emerged with the Kyoto Protocol, and carbon credit trading began. Countries that signed the protocol are subject to mandatory markets, while countries like Turkey, which did not sign but committed to emission reductions, participate in voluntary markets. According to market principles, if a producer or country exceeds its set quota, it can purchase carbon allowances from a country or producer with lower emissions. However, trading cannot occur between mandatory and voluntary markets; each market operates independently. This leads to significant differences in the unit price of similar credits in different markets. For example, a carbon credit may trade at €80/ton in the mandatory market but only €4/ton in the voluntary market. Carbon credit prices are not fixed and are determined by supply and demand in a free market system. Factors such as the year of credit issuance, project type, and project location also affect carbon credit prices. Certification bodies vary for mandatory and voluntary markets. Globally recognized organizations include Gold Standard, Verra, Greenhouse Gas Certification, and the Carbon Reduction Institute. Certification requirements and eligibility depend on the methodologies and conditions established by each body. For example, not every forestry project is eligible for certification. Factors such as project start year, tree species used, minimum area requirements, land ownership, and the contribution of carbon credits to the project are essential in the certification process. For voluntary markets in Turkey, Voluntary Emission Reduction (VER) certificates are used. Certification bodies for voluntary markets include Gold Standard (GS), Verra (VCS), Greenhouse Gas Certification (GCC), Carbon Reduction Institute (ICR), and International Renewable Energy Certificate (IREC). Carbon credit prices can vary across institutions and years. All these certification bodies operate as non-governmental organizations (NGOs).

Carbon Credit Projects and Their Impacts

Carbon credits can be generated through various types of projects, including:

• Energy Efficiency Projects: Projects aimed at increasing energy efficiency in industrial facilities or buildings can generate carbon credits. These projects reduce energy consumption, lower greenhouse gas emissions, decrease operational costs, enhance energy security, and promote green business opportunities.

• Biodiversity and Sustainable Development Projects: Activities such as conserving biodiversity, restoring ecosystems, and promoting sustainable agriculture can generate carbon credits. These projects protect ecosystems, restore ecological balance, and support long-term sustainable development for local communities.

• Forestry and Forest Conservation Projects: Projects that prevent deforestation or create new forest areas aim to reduce greenhouse gas emissions. By reducing atmospheric carbon, they generate carbon credits.

• Renewable Energy Projects: Projects like wind, solar, and hydroelectric power are common sources of carbon credits. They reduce greenhouse gas emissions compared to fossil fuels, lower air pollution, and benefit local economies.

Carbon Credits in Turkey

Since 2005, Turkey has implemented voluntary carbon market initiatives aimed at reducing carbon emissions, issuing Voluntary Emission Reduction (VER) certificates for traded emissions. Companies seeking to offset their greenhouse gas emissions calculate their emissions and purchase carbon certificates from projects that reduce emissions as part of their corporate social responsibility. The “Regulation on Registration Procedures for Projects Providing Greenhouse Gas Emission Reductions,” published on April 25, 2012, established rules for voluntary carbon markets in Turkey, aiming to record emission reduction projects primarily by private enterprises. Its goal is to monitor, verify, and report greenhouse gas emissions from activities listed in Annex I of the Kyoto Protocol, including cement, ceramics, paper, electricity and steam production, iron and steel, lime, and glass production.

Many renewable energy facilities in Turkey have been certified on GCC, GS, Verra, and IREC platforms. One example is the “Forests from the Sun” project, focusing on clean energy generation and carbon emission reduction. Initiated in 2014, the project uses a 500 kWp photovoltaic solar power system to generate electricity from sunlight. The energy produced replaces fossil fuel energy, reducing carbon emissions. The emission reduction effect of the project is certified as carbon credits by GS in national and international carbon markets, recognizing and supporting its environmental and social benefits.

Although carbon credit initiatives exist in Turkey, the country’s rich renewable energy potential remains underutilized. Turkey possesses diverse renewable energy sources such as solar, wind, hydro, and biomass, highlighting significant potential for reducing greenhouse gas emissions and transitioning to sustainable energy. Consequently, Turkey has a high potential for generating carbon credits through renewable energy projects.