How do carbon credits work?

Numerous organizations set ambitious climate targets, aiming to reduce emissions from their operations while supporting external decarbonization efforts to offset those emissions that remain unavoidable.

Carbon credits play a crucial role here.

Issued, monitored, and verified according to rigorous international standards, they offer businesses a reliable and transparent means to offset their unavoidable emissions.

By utilizing carbon credits, companies can demonstrate to stakeholders their genuine efforts to offset carbon emissions.



These credits facilitate essential funding for decarbonization projects worldwide, crucial for achieving global climate objectives and aiding communities disproportionately affected by climate change despite their minimal contribution to it.

What is the difference between carbon credits and carbon offsets?

Offsetting involves a proactive approach by companies to support external carbon projects aimed at reducing, removing, or preventing greenhouse gas emissions, thus balancing their own emissions output.

Carbon credits serve as the currency in this exchange, representing the units purchased by companies to counteract their unavoidable emissions. Each credit symbolizes the avoidance or removal of one metric ton of CO2 from the atmosphere, contributing to overall emission's reduction efforts.

Importantly, this discussion focuses on carbon credits within the voluntary carbon market, where businesses choose to invest in external carbon reduction projects as part of their sustainability initiatives.

This voluntary engagement underscores a commitment to environmental stewardship and corporate responsibility.

Beyond the voluntary market, there exist compliance markets governed by government programs that establish emissions caps, primarily targeting high-emission sectors. Within these regulatory frameworks, businesses are compelled to take action to mitigate their environmental impact.

While compliance mechanisms vary globally, some jurisdictions allow companies to offset a portion of their emissions by purchasing carbon credits, thereby fulfilling regulatory obligations while supporting emission's reduction efforts.

Who sells carbon credits?

Carbon projects undergo registration with internationally recognized standards, leading to the issuance of carbon credits post-independent verification of achieved emissions reductions or removals.

These credits are then deposited into a registry, functioning as a comprehensive database housing details such as standards, methodologies, geographic specifics, vintage, and issuance dates.

They are credited to the registry account of the project owner, responsible for Carbon Asset Development encompassing project design, credit issuance, and audit management.

Projects may involve multiple stakeholders, including local communities or corporate investors.

Post-issuance, credits become available for purchase and sale.

Often, they are traded through specialized carbon market entities like Climate Impact Partners. These intermediaries assess project quality, curate portfolios, and facilitate transactions for buyers striving to meet ambitious climate targets beyond internal reductions.

To offset unavoidable emissions, companies must "retire" carbon credits via a public registry. This action renders the credit unusable by any other party, effectively offsetting one tonne of CO2 against the company's carbon footprint.