Carbon Credit Project Types 101: Understanding the Various Offset Initiatives

A carbon credit represents one tonne of carbon dioxide or other greenhouse gas (GHG). Carbon credits are generated by carbon credit projects, which aim to avoid or remove GHG emissions from the atmosphere. They are then bought and sold via the compliance and voluntary carbon markets.

There are many different carbon credit project types. Each avoids or removes greenhouse gas emissions in different ways. Understanding the pros and cons of carbon project types will help you choose the right ones to invest in for your organization and help combat climate change. This is especially true as demand for high quality carbon credits (AKA high-integrity carbon credits) increases.

In this article, we explain the difference between carbon avoidance and carbon removal projects, specific projects that fall into each category, how to choose the right project type, the role Sylvera plays in assessing, differentiating, and pricing various project types, and more.

Understand the Two Core Mechanisms: Avoidance vs. Removal

Carbon projects can be separated into two distinct categories: carbon avoidance projects and carbon removal projects. As the names suggest, one helps reduce emissions that would have otherwise polluted the atmosphere, the other removes current emissions from the environment.

Understanding the difference between avoidance and removal projects is important, as it helps determine project focus. When this is known, developers can build more effective projects, regulators can evaluate them effectively, and buyers can purchase credits that facilitate their goals.

Nature-Based Solutions (NBS) vs Carbon Dioxide Removal (CDR) Projects

Projects avoid or remove carbon emissions in one of two ways: through nature or through technology. (Note: there are projects that use a combination of nature and technology-based strategies.)

Let's take a detailed look at nature-based solutions (NBS) and carbon dioxide removal (CDR) projects.

Nature-Based Solutions (NBS)

Nature-based solutions (NBS) leverage natural processes to remove and store carbon. They're relatively cheap to launch and offer a wealth of co-benefits. But they can't claim the same level of durability as most technology-based initiatives. Here are the most popular nature-based projects:

1. ARR Projects‍

Short for "afforestation, reforestation, and revegetation," ARR projects focus on planting trees in new locations, restoring degraded forestland, and regrowing vegetation cover.

Forestry projects produce more carbon credits than any other project type. They're great for sequestering carbon in the atmosphere, improving soil health, and promoting biodiversity. However, they're not very durable when compared to technology-based projects. Because of this, some companies choose to invest in alternative solutions to reduce greenhouse gas emissions.

2. REDD+ Projects‍

REDD stands for "reducing emissions from deforestation and forest degradation in developing countries." The '+' stands for "additional forest-related activities that protect the environment."

REDD+ is backed by the United Nations (UN) and aims to preserve forests in the name of climate change. The pros and cons of ARR projects (above) apply to REDD+ projects as well.

3. Regenerative Agriculture Projects‍

Regenerative agriculture projects focus on healthy soil within farming ecosystems. Done right, Regen Ag projects, as they’re often called, increase soil carbon, while better managing water and fertilization.

Specific examples of Regen Ag projects include implementing cover crops, practicing crop rotations, advancing residue management, and promoting no-till or reduced-tillage techniques. Each of these projects can generate carbon credits that offset carbon dioxide emissions. But like most other nature-based projects, Regen Ag initiatives aren't nearly as durable as CDR projects.

4. IFM Projects

Improved Forest Management (IFM) projects focus on enhancing the carbon storage capacity of existing forests through better management practices. Unlike ARR projects that plant new forests, IFM works with established forestland to optimize carbon sequestration.

These include extending harvest rotations, reducing harvest intensity, and converting forests from short-rotation to long-rotation management. These practices allow forests to store more carbon over time while maintaining timber production. IFM projects offer the advantage of working with established ecosystems, but like other forestry initiatives, they face durability challenges and potential reversibility risks from natural disasters or management changes.

5. Blue Carbon Projects

‍Blue carbon projects capture carbon from the atmosphere and store it in marine and coastal ecosystems. Mangrove restoration and conservation of wetlands both apply.

Blue carbon initiatives have grown in popularity because of their vast benefits. They can store massive amounts of carbon in more durable ways than most of nature-based solutions. Plus, blue carbon projects prevent erosion and support marine biodiversity, two important co-benefits.

Wondering which nature-based projects to support? Sylvera provides detailed ratings of many NBS initiatives, as well as in-depthbiomass data. As such, our solution will help you choose quality NBS projects that support your company's emissions reduction goals and shrink its carbon footprint.

Carbon Dioxide Removal (CDR) Projects

Carbon dioxide removal (CDR) projects focus on removing CO2 and other greenhouse gases from the atmosphere. CDR projects can use both natural and technological means to accomplish this goal, though most recognized CDR methods are technology based. The most established CDR project types are:

6. Biochar‍

Biochar is a carbon-rich material that's made by heating organic biomass, such as forestry waste, in low-oxygen conditions. The process is called pyrolysis, and it has carbon dioxide removal benefits.

For example, biochar projects can lock carbon in a stable state for hundreds—if not thousands—of years. This level of biochar permanence has caught the attention of corporate buyers and investors, who only want to invest in high quality credits to offset carbon emissions and/or turn a profit.

7. Direct Air Capture (DAC)‍

Direct air capture (DAC) projects, sometimes referred to as direct air carbon capture (DACC) projects, use technology to capture carbon that's already been released into the environment.

Here's how it works: giant fans draw in air, which is passed through a sorbent filter that physically binds with the present CO2. The filter is then heated, releasing the bound CO2 so that it can be captured and either stored or reused. Finally, the remaining, carbon-free air is released back into the atmosphere.

DAC technology is extremely important because it removes potent greenhouse gases that are already in the air—and it can do it at scale. This makes these carbon capture credits quite valuable, but further development is needed to see DAC get to the scale of other projects.

8. Enhanced Rock Weathering‍

Weathering is a natural process that breaks down rocks into their base minerals.

Enhanced rock weathering (ERW) is similar. Finely ground rocks are spread over agricultural land. When this powder reacts with rain, it absorbs carbon in the atmosphere and stores it in the soil.

Enhanced rock weathering projects offer extremely durable carbon reduction opportunities. Because of this, the credits these projects generate are gaining momentum in exclusive business circles.

9. BECCS‍

Bioenergy with carbon capture and storage (BECCS) projects aim to sequester carbon from bioenergy applications and either store it in geological formations or use it to manufacture new products. Said bioenergy applications include burning biomass for energy generation and ethanol production

BECCS projects offer incredible durability and are able to scale better than many other CDR projects. They also have huge sequestration potential. Because of these things, BECCS projects are a great way to offset a company's carbon or greenhouse gas equivalent emissions.

Carbon dioxide removal projects have many benefits—especially when it comes to durability. But they're often expensive because they require new technology, which adds risk to investments.

Sylvera's approach to rating early-stage CDR projects, including our industry-leading lifecycle assessments, helps minimize risk. In other words, our ratings help you find quality CDR projects so that you can invest with confidence and reap the benefits these initiatives generate.

Other Carbon Credit Project Categories

While NBS and tech-based CDR projects tend to be more mainstream or see the most growth, they aren't the only carbon credit project types. Here are a few other complimentary project types you'll likely see:

10. Renewable Energy‍

Renewable energy projects generate energy from natural resources, like wind, water, and the sun. This avoids burning fossil fuels like coal and oil - which we know contributes hugely to climate change.

Carbon offset credits for renewable energy projects are calculated by projecting the number of fossil fuels that would have been burned to generate the same amount of energy.

Renewable energy projects have co-benefits too, like improved air quality, new job opportunities, and the chance to teach locals about technology. This last benefit is highly valued in developing countries.

11. Waste Management‍

Waste management projects focus on reducing carbon and methane emissions from waste. For example, a project might capture carbon from landfills. Or use anaerobic digestion techniques to break down cattle manure so it doesn't release as much methane into the environment.

Waste management projects generate carbon offsets, which can be bought and sold via the global carbon market. They also reduce air pollution, bad smells, and sickness.

12. Household Devices‍

Household devices projects provide energy efficient cook stoves and water filters to developing countries. That way the people who live in these local communities don't burn as many fossil fuels, which leads to poor air quality and bad personal health, and harms the environment.

While cook stoves and water filters may seem like simple things, they're actually incredibly beneficial to the people who receive them. Many investors appreciate this co-benefit.

13. Alternate Wetting and Drying‍

Alternate wetting and drying (AWD) projects transform traditional rice farming by periodically drying out rice paddies instead of keeping them continuously flooded, significantly reducing methane production.

Projects generate carbon credits by quantifying methane reductions, and can achieve 20-50% reductions compared to traditional farming methods. Their permanence makes AWD credits particularly attractive to buyers seeking immediate, irreversible climate impact. 

AWD projects deliver substantial co-benefits including 30-40% water savings (critical in water-stressed regions),improved farmer incomes through carbon revenue sharing, and enhanced agricultural knowledge in rural communities.

We should mention that renewable energy, waste management, and household devices projects often face additionality scrutiny. Critics wonder if the carbon credits they produce are justified.

Sylvera's suite of tools will help you evaluate these kinds of projects—as well as the other projects above—to assess their quality. That way you only purchase carbon credits that have true value.

How Project Type Affects Price and Risk

You should know that project type can have a significant impact on credit price.

Some projects are cheaper than others, which allows project developers to sell credits for less. Other projects have a higher perceived value, which boosts pricing for the credits they produce.

Delivery risk also plays a factor. Projects that are considered high-risk often generate cheaper credits. For certain projects, buyers aren’t100% sure if they'll receive the credits they paid for or not.

Finally, ratings by independent agencies like Sylvera can affect pricing. Our ratings system scores projects from D to AAA, with D being the lowest score and AAA being the highest score. Projects that score an AAA will be able to sell their credits for more than projects that receive a D.

To illustrate this, an ARR project with a good rating will typically sell at lower prices (when compared to CDR projects) because they're nature-based with less up-front delivery costs and less permanent carbon storage. In contrast, DAC (Direct Air Capture) projects, even though they carry some risk in terms of future delivery, still command premium prices due to their technological permanence and high durability.

How Sylvera Evaluates Carbon Credit Project Types

Sylvera rates many different carbon credit project types. The methodology we use is trusted by corporate buyers and investors around the world. Here's how it works:

• Post-Issuance Ratings: Our widely-used post-issuance ratings, known as simply our Ratings, help you determine which projects produce quality credits and which don't. We base our Ratings on direct insights from project developers and design documents, proprietary datasets with aboveground biomass data for 48 million trees across four biomes, and trusted third-party data from GEDI, Landsat, and the World Bank. We then put this information into customized frameworks for each project type.
• Pre-Issuance Ratings: Our Pre-Issuance Ratings are designed to provide realistic ratings for early-stage (still to be issued) projects. They’re made up of three modules. These modules are Integrity, the rating a project is expected to receive at issuance; Delivery, how the credits will be delivered and when; and Value, how this information translates to money using our price rating correlation. We also give remedial actions to help improve project quality and value.

It should be noted that all of our NBS ratings are backed up by in-depth field data. We don't use allometric estimates. Instead, we use our own research, gathered using the latest lidar technology to scan 25,000+ individual trees across 220,000 hectares—by far the most comprehensive in the industry.

And to cap things off, we provide tools for monitoring your investments. That way you always know how your projects are progressing and can intervene if needed.

Choosing the Right Project Type for Your Organization

Now that you know the different carbon credit project types, you can choose ones to invest in.

Do you want to support reforestation and afforestation projects? Would you rather focus on upcoming CDR projects, like biochar or direct air capture (DAC)? Something else?

In our opinion, you should base your decision on five key factors:

• Climate Impact Goals: Is your company pursuing a like-for-like or gradual transition strategy? Your answer will help determine the emissions reduction projects you invest in.
• Budget and ROI Expectations: How much money can you invest in carbon offset projects? And what's your expected return? Always consider budget and ROI potential before investing.
• Risk Tolerance: Some carbon reduction projects are more risky, though they often offer greater upside. Are you willing to put you and/or your company in these kinds of scenarios?
• Public Perception: More people are aware of the carbon credit market than before. If you don't purchase high-quality credits, you could face backlash from the general public. How comfortable are you with this? If the answer is, "not very comfortable," commit to top-level credits.
• Co-Benefits: Are you passionate about specific co-benefits? Perhaps a certain co-benefit aligns with your company's overarching mission. If so, invest in projects that support these things.

The case for procuring a mixed carbon portfolio

But ultimately, viewing nature-based solutions and carbon dioxide removal technologies as competitors is a mistake. They are complementary tools in addressing the climate crisis and the smartest, most strategic buyers are building their carbon portfolios with a blend of both.

Fundamentally, we need to use all available levers to rapidly reduce emissions, which means scaling nature-based climate solutions now, while simultaneously investing in emerging CDR technologies like DAC. This approach ensures that technological solutions can scale effectively in the 2030s and 2040s, once we've maximized the potential of nature-based solutions. 

The most effective climate strategy combines both approaches, leveraging the immediate impact and co-benefits of natural systems alongside the long-term durability of technological solutions.

Conquer the Carbon Market

You must understand project types if you plan to procure or invest in carbon credits. Otherwise, you won't be able to make wise purchasing decisions and could end up with low-quality credits.

Fortunately, tools like Sylvera will give you the data, ratings, and industry expertise you need to conduct your due diligence and surface credible, high-value opportunities that meet your unique goals. Request a demo of Sylvera today to see our industry-leading platform in action.