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Carbon Credits

Carbon credits are tradable certificates representing the reduction or removal of one metric ton of carbon dioxide (CO2) or its equivalent from the atmosphere. They are used by companies and governments to offset their greenhouse gas emissions, supporting regulatory compliance or voluntary sustainability initiatives.

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How They Work:

Carbon credits are generated by projects that reduce or avoid emissions, such as reforestation, renewable energy, or methane capture. These credits can then be traded in carbon markets and purchased to offset emissions.

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Types of Carbon Credits:

• Compliance Credits: Used in emissions trading systems (ETS), such as the EU ETS, where governments cap emissions and allow companies to trade allowances within that cap. Compliance credits are typically mandated by law.
• Voluntary Credits: Purchased by companies or individuals as part of voluntary sustainability commitments. These credits are often used to demonstrate climate leadership or align with consumer expectations.

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Verification Standards:

Voluntary carbon credits are validated by third-party organizations like Verra (which manages the Verified Carbon Standard) or Gold Standard, ensuring the integrity, permanence, and additionality of the credited emissions reductions.

Did You Know?

The voluntary carbon market exceeded $1 billion in value in 2021, driven by increasing corporate commitments to achieving net-zero emissions.

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