SINRA White Paper

2-2. Carbon credits

Carbon credits are certificates that represent a certain amount of carbon dioxide equivalent (tCO2) that has been reduced, avoided, or removed from the atmosphere through a carbon reduction project certified by an accreditation agency.
To mitigate climate change, it's essential to increase the production of carbon credits, thereby amplifying the number of globally recognized projects that have proven potential to reduce atmospheric carbon dioxide levels.
Carbon credits employ the "Baseline & Credit" method. Under this system, if actual emissions fall below projected emissions (the baseline), the difference undergoes MRV (Monitoring, Reporting, and Verification) and is then certified as a credit. For instance, in the context of forestry and afforestation, if proper forest management or afforestation leads to a greater CO2 absorption than the established baseline, that differential is certified as a credit. Beyond forestry, companies introducing efficient boilers or installing solar power systems can also receive certification for carbon credits if their actual emissions end up being lower than initially anticipated.
Carbon credits can be broadly categorized into two types: "UN/Government-led credits (Compliance Credits)" and "Privately-led credits (Voluntary Credits)."
UN/Government-led credits are credits available for use when countries or states mandate businesses to reduce greenhouse gas emissions. Only UN/Government-led credits can be reported by companies to their respective countries or states. As a result, there is a high demand for these credits from businesses operating within these jurisdictions (given the clear demand, there is a tendency for these credits to be priced higher). Some countries use the Compliance Credits not based on the "Baseline & Credit" approach, but solely adopt the "Cap & Trade" system for emission trading (ETS).
On the other hand, privately-led credits (Voluntary Credits) cannot be reported by companies to their respective countries or states as part of their obligated targets. However, some voluntary credits are approved under CORSIA(*) and, given the momentum towards establishing a global standard, these credits allow for climate change mitigation efforts that aren't dependent on the country of affiliation. This approach is gaining attention for its potential to make a significant impact in the global pursuit of carbon neutrality.
(*) CORSIA: The "Carbon Offsetting and Reduction Scheme for International Aviation" established by the International Civil Aviation Organization.
Carbon credits can be categorized based on their origin, either from emission avoidance/reduction or from carbon sequestration/storage.
The smallest unit for all carbon credits is "1 tCO2 (ton)," and while they all represent the same value in terms of CO2 reduction, their actual prices can vary depending on factors such as the type of project, certifying agency, and associated social impacts.
At SINRA, we focus on handling nature-based carbon credits that offer numerous co-benefits and contribute to local revitalization. Through this approach, we aim to attract more people and resources to initiatives that conserve, restore, and amplify natural capital.
Additionally, in the early stages, we aim to invigorate the J-Credit, a compliance credit derived from Japanese forests. We will focus on creating NFTs that correspond to J-Credit.