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What is the Difference Between Spot Credits, Forwards, and Offtake Agreements?
- Spot Credits are transacted immediately, with prices reflecting the current market conditions. This immediacy offers flexibility, but comes with the risk of price volatility.
- Forwards are pre-arranged contracts to purchase credits at a future date at predetermined prices, used as a hedging and speculation tool to potentially profit from future price fluctuations.
- Offtake agreements are long-term commitments used to finance new projects by guaranteeing a market for their future carbon credits, locking in supply and mitigating the risks of long-term price fluctuations.
Benefits and Downsides of Spot Credits:
- Benefits:
- Ability to purchase credits flexibly as needed, adapting quickly to changing neutralisation & compensation requirements and strategies.
- Take advantage of potentially more competitive prices driven by market dynamics based on current supply and demand.
- Directly support projects with verified carbon reduction or removal, resulting in immediate impact.
- Downsides:
- Market dynamics can lead to price volatility with unpredictable and potentially high costs.
- The speed of transactions may complicate due diligence efforts due to verification challenges.
- May not provide adequate long-term financial support needed to finance new projects.
How to Incorporate Spot Credits into Your Sustainability Strategy:
Integrating Spot Credits into a broader sustainability strategy involves:
- Use spot credits for immediate needs, while maintaining investments in longer-term carbon credit projects such as offtake agreements.
- Monitor the market to stay informed about trends to identify optimal times for purchasing spot credits.
- Partner with reputable platforms like Senken to ensure the credits' legitimacy and impact. Learn more about Senken’s due diligence process for selecting high quality carbon credits.
