Global warming and climate change are two of the largest issues impacting the entire world, and countless businesses and individuals are doing their part to help. Many are focusing on sustainability, reducing fossil fuel use, converting to renewable energy, and lowering their greenhouse gas emissions to get themselves heading toward carbon neutrality.
Unfortunately, reaching net-zero status simply isn’t possible for some people and organizations, so they rely on purchasing carbon credits to offset any remaining emissions. These carbon credits are traded on open markets as commodities, and like with any commodity trading, there’s money to be made.
This leaves many people and organizations wondering if creating carbon credits is a profitable venture. Below, we cover the topic of creating carbon credits, even in the private sector, and selling them for a profit.
Can You Make Money From Carbon Credits?
Yes, you can make money from carbon credits or carbon offsets, since you can buy and sell these credits just like any other commodity on the open market. This is how it works: A business or organization reduces their carbon emissions — that is, the amount of carbon dioxide (CO2) emissions or any equivalent greenhouse gas emissions (GHG emissions) they produce. They receive a carbon credit for each metric ton of carbon emission reduction, sequestration (carbon capture), or destruction.
The business or organization then sells that carbon credit on a voluntary carbon marketplace. A business, organization, or individual who emits excess carbon can offset their emissions by purchasing a carbon credit or offset on the marketplace to balance out their emissions.
For example, a business owner needs to travel across the country to attend an important meeting with an investor — in this situation, a virtual meeting won’t suffice. So they have no choice but to fly there, making them responsible for tons of CO2 emissions. The business can offset these emissions by purchasing carbon offset credits on the voluntary marketplace. This can also be done by an individual who is looking to live as carbon neutral a life as possible.
One critical nuance to remember is that there is a difference between a carbon credit and a carbon offset. Carbon credits are issued based on a fixed amount of carbon the government permits an organization to emit, sometimes called an emissions cap. If they produce fewer emissions, an organization can sell their credits to other organizations. However, if an organization exceeds their emissions cap, federal laws require the company to purchase credits from other organizations through compliance markets. This is called a cap-and-trade program.
A carbon offset, which is sometimes also called a carbon credit or a carbon removal credit, is created through a voluntary reduction of CO2 emissions that a third-party organization verifies. Once verified, you’re issued carbon removal credits you can sell on a voluntary carbon credit market.
How Much Do Carbon Credits Sell For?
Like most other commodities, carbon credits don’t have a fixed price. Instead, their pricing fluctuates with supply and demand. It also fluctuates with complexity, which is called a cost-based model. The cost-based model sets the fair-trade minimum price to cover the costs of a carbon-offset program.
An example is blue carbon credits, which involve restoring seagrasses to help sequester CO2 and other GHG emissions. This is a detailed process that generally comes at a higher cost than most emissions-reducing projects, so these carbon removal credits often sell for higher prices.
Carbon credits in 2023 cost $40 to $80 per metric ton of CO2 or equivalent GHG emissions. However, carbon pricing can fluctuate greatly with demand. For example, in 2021, carbon trading prices plummeted to just $12.70 per metric ton (also known as a tonne).
The demand is often fueled by government regulations and various global agreements to slow global warming and climate change, such as the Paris Agreement or the Kyoto Protocol. Because these treaties and agreements aim to reduce GHG emissions, they cause demand to rise for carbon credits, thereby causing carbon removal credit prices to increase.
So, if you were to take one of the greener flights from Tampa, Florida, to Manila, Philippines, your seat in the economy section of the aircraft would be responsible for 835 kg of CO2 emissions, or 0.835 metric tons. If you wanted to offset those emissions, you’d need to purchase $33.40 to $66.88 in carbon removal credits.
How Much Is One Carbon Credit Worth?
As mentioned above, one carbon credit has a monetary value on the compliance and voluntary carbon markets of $40 to $80, on average. However, this can be expected to fluctuate greatly with supply and demand, which is also fueled by regulations.
As for its physical value — how much carbon makes up a single carbon credit — that is a far easier calculation. One carbon credit is exactly one metric ton of carbon dioxide or equivalent greenhouse gas.
Can I Sell Carbon Credits From My Land?
You’ve likely heard of carbon offset projects that involve reforestation or preventing deforestation. These create carbon credits because trees are excellent carbon sinks, meaning they sequester or absorb the CO2 in the air. But forestry isn’t the only nature-based CO2-reduction project out there. There are also projects concerning seagrasses, prairies, plains, and more.
For example, farmers can plant cover crops between their cash crops. These cover crops absorb CO2 and transfer it to the soil via their deep root system. Farmers can then use this CO2 sequestering to create carbon credits and sell them. They can also convert retired farmland — land that’s no longer suitable for cash crops — into prairies with vegetation that absorbs CO2 and transfers it to the soil. The farmers can also use this carbon reduction to create carbon credits they can sell.
The possibility to host nature-based CO2-reducing projects even extends to the private sector, as landowners can sell carbon credit from their lands. This can include planting trees on your property, agreeing not to cut down certain trees on your property, or planting other carbon-sequestering vegetation on your land. For farmers, some climate actions that create marketable carbon credits they can sell to emitters include converting old farmland to prairies, as mentioned above, regenerative agriculture, and no-till or reduced-till farming.
Regenerative farming is a philosophy that runs counter to industrial farming, as regenerative farmers always account for their environment, ecosystems, water bodies, and more in their farming practices.
No-till or reduced-till farming is when farmers use farming practices that do not include tilling the soil or dramatically reducing the amount of tilling. Tilling the soil brings organic materials to the surface, giving new plants food and nutrients. However, this also releases carbon dioxide and other GHG emissions from this material into the atmosphere. This is on top of the emissions the machinery makes when tilling the land.
How Much Is an Acre of Carbon Credits Worth?
An acre of land used for carbon sequestration or other methodologies for reducing a carbon footprint generally removes 0.2 to 1.5 metric tons of carbon annually. Given that these CO2 reductions are worth $15 to $20 per metric ton, whoever owns that acre of land can expect payments of $3 to $30 per year per acre.
According to multiple studies, the average landowner is willing to use their property for carbon storage if they net $21.60 per acre. This puts the average payment right in line with the price landowners seek. Of course, the average amount will vary by geographic location, but the national average aligns with the average payout range per acre.
How Many Acres Do You Need for Creating Carbon Credits?
More is better when using your property as an income source through the creation of carbon credits. For example, the more property a farmer has, the more cover crops they can plant, and the more carbon credits they can create and sell. However, there are no laws requiring a certain property size to produce carbon credits. So there’s no minimum acreage you need for creating carbon credits.
That said, you must consider your time and monetary investment in creating the credits versus the payout. So, if you only have an acre that can sequester 0.5 metric tons of carbon, your payout would likely be $7.50 to $10 annually. That may be fine if there’s no extra work required, but if you must spend time maintaining crops in a special way, it’s likely not worth your time.
On the other side of the equation, if you have a 1,000-acre farm and can offset 1.5 tons of carbon per acre, you’re looking at a potential payout of $22,500 to $30,000 annually. If it’s relatively simple to change your farming practices or take on other carbon-sequestering actions, this will likely be a profitable venture.
So how many acres do you need for a carbon credit? That depends on your goals and how valuable your time is. You also have to review the rules of the carbon marketplace that you’re selling on, as it may have a minimum CO2 offset requirement.
Yes, You Can Earn Money With Carbon Credits
Whether buying and selling carbon credits on the voluntary carbon market for a profit — similar to how you’d make money in the stock market — or creating carbon credits and selling them, you can earn cash with carbon credits. And you don’t have to be a large business to earn these credits, either. Landowners and farmers can also cash in on carbon credits by using their tracts of land as carbon sinks or modifying their farming processes.
The best part is that you don’t need thousands of acres to capitalize on the carbon credit market. As long as you meet the minimum requirements set by the carbon marketplace you plan to sell on and the payoff amount is worth the investment of your time, then you can start using any size of land to create carbon credits.
If you’re in the market to purchase voluntary carbon credits to offset your carbon footprint and get closer to being a net-zero CO2 emitter, Terrapass can help. We offer carbon removal credits for a wide range of business and personal situations, ranging from weddings to business travel and beyond.
Check out Terrapass today and see how we can help you reduce your carbon footprint.