What are carbon credits?
As governments pressure the private sector to limit greenhouse gas emissions, the world’s largest companies have turned to a financial product to offset their environmental footprints — carbon credits.
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What is a carbon credit?
A carbon credit is a kind of permit that represents 1 ton of carbon dioxide removed from the atmosphere. They can be purchased by an individual or, more commonly, a company to make up for carbon dioxide emissions that come from industrial production, delivery vehicles or travel.
Carbon credits are most often created through agricultural or forestry practices, although a credit can be made by nearly any project that reduces, avoids, destroys or captures emissions. Individuals or companies looking to offset their own greenhouse gas emissions can buy those credits through a middleman or those directly capturing the carbon. In the case of a farmer that plants trees, the landowner gets money; the corporation pays to offset their emissions; and the middleman, if there is one, can earn a profit along the way.
But this only goes for what is called the “voluntary market.” There is also something called the involuntary or “compliance market.”
What are carbon credits and how do they work?
Carbon credits are measurable, verifiable emission reductions from certified climate action projects. These projects reduce, remove or avoid greenhouse gas (GHG) emissions. But they also bring a whole host of other positive benefits, for example, they empower communities, protect ecosystems, restore forests or reduce reliance on fossil fuels.
Projects must adhere to a rigorous set of criteria to pass verification by third-party agencies and a review by a panel of experts at a leading carbon offset standard like Verra or Gold Standard.
After an organisation or an individual buys a carbon credit, the credit is permanently retired so it can’t be reused.