Continuing on about Shell’s Quest project carbon credits…
Astute readers of Part 1 of this blog will point out there are different regulatory implications depending on whether a project produces carbon credits versus carbon offsets sold into the voluntary market. In a carbon credit regime, regulators establish a maximum annual CO2 emissions budget for their jurisdiction, then allocate (permit) maximum emissions levels to individual companies/facilities. Carbon credits are regulatory tools that can be purchased to offset emissions that exceed those maximum regulatory levels. The system is commonly referred to as “cap and trade”. Carbon offsets traded on voluntary markets do not have similar regulatory standing – their main uses are helping manage both global CO2 emissions volume on a voluntary basis and corporate reputational risk. A brief explanation from Penn State Extension of credits versus voluntary offsets is here. I also like this graphic in Constellation Energy’s explanation.
I did a quick review of Shell’s Quest 2022 Project Summary Report and Shell (who certainly understands the difference and would be quite careful about using the proper terminology) uses “credits” throughout. Moreover, the project was developed and operated under the Government of Alberta’s Technology Innovation and Emissions Reduction (TIER) regulatory program. It appears we are talking about carbon credits here, so buyers could face regulatory enforcement if they exceeded the maximum permitted CO2 emissions levels (their “cap”) without the potentially invalid credits. On the other hand, given the Government of Alberta’s direct involvement in the whole mess, will they enforce? I’m not sure that’s a fight they would win.
Back to Matt Levine’s question about buyer expectations of carbon credits – his point is probably accurate in the context of unregulated voluntary offsets. However, if we are talking about regulated carbon credits used for compliance purposes, the stakes are higher.
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Image Credit: Alexandr Blinov – stock.adobe.com
