How to plan for procurement of carbon credits?

Key takeaways

1. Establishing a good understanding of the voluntary carbon market, including pricing and quality of carbon credits, is crucial before selecting vendors for carbon credit procurement.
2. It's important to define clear objectives aligned with the company's emissions pathway, set specific standards for carbon projects, and choose a suitable sourcing strategy, whether it's direct purchases, resales, brokerages, or platforms.
3. You can learn a lot from speaking to multiple prospective vendors, broadening your knowledge of available supply, and updating your strategy accordingly.
4. Effective carbon credit procurement involves rigorous due diligence, careful budgeting, diversified sourcing, strategic contract negotiation, and integrating the procurement process into the broader sustainability goals of the company.

Once a Net Zero strategy has been signed off, with the carbon credit strategy, it's time to engage in the voluntary carbon market. The chapter gives actionable insights and strategies for purchasing carbon credits. The procurement process of carbon credits can be broken up into a Planning, Sourcing, Negotiation, and Execution & Monitoring phase.

Planning phase

The planning phase has been described in the previous modules and encompasses the following

1. Establish a good enough knowledge base

Before selecting your vendor/s, ensure that you have a good understanding of the market as it stands, especially on topics such as :

• Prices of Nature-based Solutions and Tech-based Solutions
• A rough overview of available supply at the highest quality ratings
• Prices of high-quality, mid-range quality and low-quality

2. Set clear objectives

• Clearly define your company's objectives and goals for carbon credit procurement. This will mean aligning objectives with the company's chosen pathway and unavoidable emissions.
• Set clear standards that carbon projects need to adhere to meet your needs. For example; projects need to be registered by Verra/Gold standard, need to be Removal only, and must have a rating by either Sylvera or Bezero.

3. Establish your carbon credit strategy and budget

• Long-term vs short-term objectives: Decide whether to action a short-term procurement of spot credits, or whether long-term offtake agreements and their associated benefits and risk mitigation characteristics apply more to your needs.
• Develop a clear budget allocation strategy that ensures adequate funds are allocated to carbon credit procurement while balancing other sustainability initiatives.

Sourcing Phase

1. Source vendors or suppliers

• Identify reputable vendors and partners with a proven track record in carbon credit procurement. Consider factors like transparency on their offerings, credibility, and project quality.
• There is a range of vendors you can choose from who have different pricing models. Each comes with its own benefits depending on what you need.
• Direct Over-the-Counter (OTC) Purchases
• Resale through Intermediaries
• Brokerage Services
• Self-service through Platforms and Marketplaces
• Consider the following methods to choose your vendor/s:
• Open RFPs (Request For Project) When there's uncertainty about market participants, RFPs serve as an effective method to gather a variety of proposals and evaluate different options. Crafting a well-structured RFP document and conducting a detailed, apples-to-apples comparison of the proposals received are critical steps in this process.
• Tenders (or closed RFPs)- Used when pre-vetted prospective vendor/s are chosen to potentially collaborate with. A well-drafted requirement document is sent with a timeframe for the proposal to be handed in.
• Single/Multi-vendor approach: Multi-vendor approaches have the benefit of diversification and spread of risk. A company could decide to choose 7 projects, spread across 2 or more vendors.
• Selecting vendors who have modern tools/products that can assist in monitoring and keeping track of your credits, especially when diversifying with various credits, could be valuable.

2. Learn from Vendors

• Suppliers or vendors deal with matters of the VCM daily, providing companies who put out a Request Project/s (RFPs) or tenders, the perfect opportunity to learn.
• Assess which vendors have gone above and beyond to meet your requirements, and would ensure the biggest % of funds flow to projects invested.

3. Diversify suppliers

• Like any investment, diversifying your carbon credit purchases is essential. Explore a range of projects that align with your needs, values, and industry to spread risk and maximise impact.

Negotiation phase

1.  Do due diligence

• Conduct rigorous due diligence on potential projects, ensuring they align with your sustainability goals and deliver verifiable emissions reductions.
• Prioritise projects with third-party verification to validate their emissions reduction claims and maximise credibility.

2.  Negotiate contract

Carefully negotiate contracts with vendors, paying attention to:

• Carbon credit characteristics: pricing, delivery terms,
• Risk warranties/insurance policies.

3.  Mitigate risk

• Develop strategies to mitigate risks associated with market volatility, regulatory changes, and potential project failures.
• Engage with vendors to offer endorsed risk mitigation strategies in the contracts/ offers.

4.  Align procurement across departments

• Ensure the sustainability department, procurement department and C-suite are in full alignment.
• Ensure funds are ready to be released, if applicable, as soon as the execution phase begins.

Execution and Monitoring Phase

1. Prepare account

• Ensure that your company has the correct accounts at the relevant registry where the credits will be retired. The retired credits will be sent to this account by the selected vendor or their partners
• Alternatively, a popular approach in the market is to let your chosen vendor /intermediary retire it on your behalf and simply send you the retirement document which includes your company details.

2. Monitor and Report

• Implement robust systems for monitoring and reporting on the performance of carbon credit projects in your portfolio.

3. Engage stakeholders and share successes

• Engage stakeholders, including employees, investors, and customers, to build support for your carbon credit procurement initiatives.
• Communicate the successes of the effect of carbon credits on your journey, as well as the important role your company played in making an impact on global climate change.

4. Review and Adapt

• Continuously review and adapt our carbon credit procurement strategy based on market developments and changing organisational goals.