Carbon offsets and credits

A carbon credit is a tradable instrument (typically a virtual certificate) that conveys a claim to avoided GHG emissions or to the enhanced removal of greenhouse gas (GHG) from the atmosphere. One carbon credit represents the avoided or enhanced removal of one metric ton of carbon dioxide or its carbon dioxide-equivalent (CO₂e).

Carbon offsetting is the practice of using carbon credits to offset or counter an entity's greenhouse gas (GHG) inventory emissions in line with reporting programs or institutional emissions targets/goals. Carbon credit trading mechanisms (i.e., crediting programs), enable project developers to implement projects that mitigate GHGs and receive carbon credits which can be sold to interested buyers who may use the credits to claim they have offset their inventory GHG emissions. Similar to "offsetting", carbon credits that are permitted as compliance instruments within regulatory compliance markets (e.g., The European Union Emission Trading Scheme or the California Cap-n-Trade program) can be used by regulated entities to report lower emissions and achieve compliance status (with limitations around their use that vary by compliance program). Aside from "offsetting", carbon credits can also be used to make contributions toward global net zero GHG-level targets. It is an individual buyer's choice how to use, or "retire", the carbon credit.

Projects entail mitigation actions that avoid or enhance the removal of GHG emissions. Projects are implemented in line with the standards of crediting programs, including their methodologies, rules, and requirements. Methodologies are approved for each specific project type (e.g., tree planting, mangrove restoration, early retirement of coal powerplants). Provided a project fulfills all of the requirements and provisions of a crediting program, it will be issued credits that can be sold to buyers. Each crediting program typically has its own carbon credit 'label' such as CDM's Certified Emission Reductions (CERs), Article 6.4 Mechanism Emission Reductions (A6.4ERs), VCS' Verified Emission Reductions (VERs), ACR's Emission Reduction Tonnes, Climate Action Reserves' Climate Reserve Tonnes (CRTs), etc.

Hundreds of GHG mitigation project types exist and have approved methodologies with established crediting programs. The program that defined the first phase of carbon market development, the Clean Development Mechanism (CDM) provides a summary booklet of its many approved methodologies. But each crediting program has its own list of approved methodologies, for example unless explicitly stated, an ACR approved methodology could not be used by someone trying to work through Verra's Verified Carbon Standard. Carbon credits are a form of carbon pricing, along with carbon taxes, and Carbon Border Adjustment Mechanisms (CBAM). Carbon credits are intended to be fungible across different markets, but some compliance markets and reporting programs limit eligibility to specified carbon credit types or characteristics (e.g., vintage, project origin, project type).