How to develop a carbon credit purchasing strategy

High-quality carbon removals address residual emissions, remove historical emissions, and work toward net zero. Developing a carbon credit purchasing strategy is essential for companies committed to meeting their climate targets. To achieve this, buyers must understand the distinct benefits and risks associated with the different procurement options available.

Buyers in the voluntary carbon market (VCM) can procure credits at  two different stages: ex-post (already issued, spot market credits) and ex-ante (in-development, forward offtake credits). Many buyers today purchase carbon credits exclusively from the spot market, meeting annual needs by buying credits that have already been issued. As the carbon market matures and demand increases for high-quality credits, forward offtake is becoming more common to ensure buyers’ access to high-quality projects and support the development of large carbon removal projects. While forward offtake secures availability and helps scale the market, it introduces complexities around payment, delivery, and project development risks. These must be carefully considered and mitigated to achieve the targeted climate goals. 

What are ex-post and ex-ante procurement for carbon credits?

Ex-post procurement, also known as spot purchasing, means buying credits that have already been issued and are ready for immediate delivery. The carbon removal has already occurred, these credits can be retired immediately on the buyer's behalf, and the buyer can claim the environmental benefit. 

Ex-post procurement is particularly important for near term goals like an in-year net-zero claim. 

Ex-ante procurement,* or forward offtake, refers to contracting for credits that have not yet been issued because the carbon removal has not yet occurred or the registry issuance process has not been completed. The buyer contracts to purchase the credits and take delivery on a specific schedule. The credits can then be retired and used for the relevant climate claim when the removal has occurred and the credits have been issued. Ex-ante procurement can include near-term or long-term purchase agreements, covering a single issuance of credits or multiple years of future credit offtake. 

Ex-post carbon credit procurement: Fulfilling near-term needs

Many buyers in the voluntary carbon market use ex-post credits to satisfy their near-term carbon removal goals, such as matching credits against in-year or historical emissions. This matching ideally means retiring credits in the same year of the emissions that they are intended to address, minimizing the amount of time unabated emissions are in the atmosphere. This approach may vary if addressing historical emissions or seeking to accelerate new projects into the market. For near term goals in particular, ex-post credits provide a secure delivery and retirement timeline. While high-quality ex-post credits can still face some risks (notably reversal risks), the carbon has been removed, the credit issued, and a buyer purchasing a high-quality credit can be confident in meeting their goals.

Key challenges of procuring ex-post carbon credits

Buyers in the ex-post market face two challenges: limited credit availability and uncertain credit prices. High-quality carbon removal credits are scarce. Buyers have increasing climate commitments and often compete over the best projects. This is particularly true during end-of-year purchase cycles. At this stage of the carbon market, there are also relatively few carbon projects producing at scale and quality. Purchasing credits earlier in the year can help relieve supply constraints, but there are limits to how much is available in any given cycle. For the credits that are available, credit prices also vary according to supply and demand, and buyers may face uncertainty or price increases. These risks are particularly relevant for buyers that plan to remain in the spot market as corporate climate commitments accelerate through 2030. For a robust purchasing strategy, we recommend combining ex-post and ex-ante procurement.

Ex-ante carbon credit procurement: Securing long-term availability

For buyers that are able to enter into forward offtake agreements, ex-ante procurement can provide assurance on volumes and pricing while offering the support and offtake that allow projects to scale.

In some cases, purchase commitments of this kind may be a precondition to the project being built at all. These commitments help to catalyze development of the carbon markets. In other cases, buyers may not be seeking to fulfill annual targets but instead may be looking to procure credits from projects or technology verticals that are scaling and do not have much, if any, current spot availability, such as direct air capture (DAC), bioenergy with carbon capture and storage (BECCS), and high-quality Afforestation, Reforestation, and Revegetation (ARR) projects. A forward offtake agreement secures access to the needed credits and helps ensure that they will be produced.

Key challenges of procuring ex-ante carbon credits

With ex-ante procurement, buyers must carefully manage the delivery and quality dynamics related to in-development credits and projects. These can come from a variety of different sources. Below is a practical summary of how to consider and manage those complexities in order to effectively deploy ex-ante procurement.

Project development: For many ex-ante offtakes, project development is underway. If the project development process takes longer than expected or does not come together, e.g., because technical challenges cannot be resolved, permits or capital cannot be secured, or cost overruns endanger project viability, it can affect delivery. 

• Buyers should carefully monitor project development progress and build milestone-driven reporting and notification requirements into the offtake agreement.

• In addition, buyers should consider the impact of delays on internal offsetting targets and align with suppliers on whether credits can be delivered late and under what conditions.

• Because timelines may be affected and not all projects will successfully generate credits, a portfolio approach to procurement can help mitigate the impact of a single project failure.

Project operations: As projects scale and produce credits, some may take longer than expected to reach their designed operating capacity, produce lower-than-expected volumes of credits, or have higher costs than expected.

• In such cases, early notification requirements can provide enough time to backfill a delayed or adjusted delivery, and buyers should understand how the developer will allocate credits if not enough are generated (e.g., pro rata, prioritized by offtake size, or at their discretion). 

• Payment aligned to credit delivery can also help minimize the risk of overpayment.

• Pricing can be set, along with any cost-related adjustments, in the offtake agreement.

Quality: Between signing the offtake agreement and credit delivery, material changes to the project design or execution can reduce the quality of the credits produced. 

• To make sure they receive the credits they signed up for, buyers can align with suppliers on technical specifications for key quality-related project design elements. If the project diverges meaningfully from the initial design, buyers will need to evaluate whether it still meets their carbon removal quality criteria.

• For large offtakers, ongoing project diligence at key stages in the development process may be necessary to ensure the project is delivered as expected.

Registry approval and issuance: For projects that are moving through registry stages, registry verification or validation can take longer than expected, and changes to registry protocols can require rework or affect the volume of credits issued. 

• It is important to understand the crediting methodology being used by the project and how credit issuance works under the registry. 

• Registry delays are a common feature of the voluntary carbon market and create a different (often less material) complexity for the project. In a production delay, the carbon has not yet been sequestered, but in a registry delay, the carbon has already been sequestered, and the parties are just waiting on issuance of the credits. As a result, they can be treated differently from production delays, and buyers can consider delivery terms and adjustments that reflect that lower risk.

Regulatory changes: The policy frameworks for carbon credits are evolving, and new policy developments may affect credits procured. For example, government entities may impose new taxes on carbon credits, revoke licenses or permits, restrict sale of credits, or not allow corresponding adjustments under Article 6 of the Paris Agreement.** Positively, some governments will add incentives and support for the development of carbon credits and that can accelerate project development or affordability.

• Some regulatory changes may lead to delays or a supplier's inability to deliver credits. In general, regulatory updates are being designed not to affect offtake agreements that are already in place, but it can be important to understand the impact of changes on the offtake, and provisions that account for any corresponding delivery delays may be important.

• For some buyers, compliance with a given voluntary market or national policy (whether existing or expected) may be important and can be incorporated into the agreement.

• If regulatory incentives may potentially provide support to a project, the agreement can be structured to provide a corresponding price adjustment for credit buyers. For offtakers to effectively support project finance, however, it is often critical that any such adjustments are clearly and predictably translated into the credit price and not left floating.

Tailoring a successful carbon credit purchasing strategy

As the voluntary carbon market continues to mature, buyers will likely use a greater mix of ex-ante and ex-post purchases to fulfill their credit needs. Clear-eyed understanding of the risks associated with both types of procurement will help buyers develop agreements that better meet their long-term needs while providing the support that suppliers need to continue developing high-quality carbon removal projects.

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