Carbon credits are one of the key tools to support the reduction of greenhouse gas emissions in the form of carbon dioxide equivalent. Investors should get to know this because it will help you see both opportunities and risks in assets. The business, country, or region in which it is invested is doing well.

The Thai Environment Institute defines Carbon Credit as the right arising from the reduction of greenhouse gas emissions or carbon dioxide into the environment, including storage or reabsorption, which must be certified by a certification body in accordance with government regulations or procedures that are accepted or comparable to international  standards.

1) Compulsory market. Emission limits are imposed on each industry and fines will be imposed in case of exceeding the right to emit or be subject to a carbon tax, but it also allows the use of the Emission Trading System (ETS) to trade with operators who emit less than their rights.

2) Voluntary markets, where the government does not impose greenhouse gas emission rights. However, the private sector has set targets to reduce carbon emissions on a voluntary basis by using the Carbon Offset mechanism, which is similar to Carbon Credit but is a model that is implemented between the private sector itself.

Third-party organizations are responsible for ensuring carbon emission reductions in accordance with standards, which may be applied differently by different countries. The unit of count is tons of carbon equivalent, which will be used to offset the unreducible carbon emissions, both in Scope 1, the organization's direct greenhouse gas emissions, Scope 2, indirect greenhouse gas emissions from electricity consumption, and Scope 3, other indirect greenhouse gas emissions.

 The highlight of Carbon Offset is that the excess can be stored for use in the next year or sold to other organizations as well, either directly (Over the counter : OTC) or traded through exchanges.

The second model, Renewable Energy Certificates (RECs), is a mechanism that allows power producers and consumers to claim the production and use of electricity from renewable sources with zero carbon emissions.

In terms of opportunities and risks from carbon credits on investments. If any company can reduce carbon to the extent that there is a surplus that can be resold. It will make that company more attractive. For investors looking to invest in low-carbon assets. At the same time, it is an opportunity to invest in innovative companies that reduce or recapture carbon emissions that will benefit from this, such as renewable energy businesses, carbon storage technologies, etc.

Meanwhile, companies that are not yet alert to reduce carbon emissions or emit carbon emissions higher than they are entitled to emi, forcing them to buy carbon credits or carbon offsets from other companies to compensate, will be less attractive because buying increases operating costs. The price of carbon is likely to continue rising.

However, there is a risk that investors need to be cautious as well, especially carbon offset that may cause greenwashing. An example of this is a company that operates a home furnishing or repair business that says it will produce furniture solely from home-grown wood, but eventually finds that it is encroaching on forest land and using illegal timber to produce it.

Source : Bangkok Post