How do Carbon Credits Work?


What is a carbon credit?

A carbon credit is a digital tradable certificate confirming that one tonne of CO2 (or equivalent greenhouse gas) has been averted in a given year by an environmental project or business. These Carbon Credits are verified by an international standards agency such as Verra or other standards.

Carbon Credits are typically bought by businesses or individuals seeking to offset their carbon footprints. They are created by environmental projects preserving the rainforest, or investment in technology that reduces/removes CO2 emissions from the atmosphere.

How carbon credits work?

Once a Climate Action project proves through a rigorous process of qualification and quantification that it has reduced, removed or avoided greenhouse gas emissions, verified credits from that project are made available within the carbon market (on trading exchanges or blockchain networks) as carbon credits.

There are two types of Carbon Markets:

  1. Mandatory or Compliance Market
  2. Voluntary Market

Mandatory or Compliance Markets largely operate within the European countries. This market is regulated by setting out a capped amount of carbon emissions an industry sector and business type incur over the year.

If the business exceeds the capped amount it must purchase carbon credits to offset its carbon footprint to get below the regulated amount. On the other hand if a business is well below the capped amount then it can sell the available carbon credits to those businesses that need to purchase carbon offsets.

Voluntary Market is just that voluntary for individuals and businesses that want to contribute towards positive climate action or enhance their values by offsetting their carbon footprints. It basically operates the same in that carbon credits are purchased and used to fund projects that are actively avoiding emissions or restoring nature to bring back balance to our climate.

To participate in the voluntary market the easiest way is to use a retailer like carbonhalo to make your contributions easy and regular through a halo plan.