Carbon credits are tradable certificates that represent the reduction, avoidance, or removal of one metric tonne of CO₂ or equivalent greenhouse gases from the atmosphere— a core market-based mechanism to fight climate change.
Carbon credits play a critical role in reducing global greenhouse gas emissions, financing climate-positive projects, enabling companies to meet climate targets cost-effectively, and driving investment into renewable energy, forestry, and waste management. They support compliance with national and international regulations and create financial incentives for emission reduction projects.
Projects like renewable energy, methane capture, waste-to-energy, and energy efficiency initiatives form the foundation of carbon credit generation.
Emission reductions are calculated using approved methodologies. Third-party auditors independently validate and verify all reductions.
Verified reductions are converted into carbon credits and registered on recognized carbon registries such as VCS and Gold Standard.
Companies buy carbon credits on the market. Credits are then retired—permanently removed from circulation—to offset their emissions.
Used in regulated carbon markets where emissions are capped by law. Participation is mandatory for covered entities.
Used by companies to meet voluntary climate commitments under standards like VCS and Gold Standard. Optional but widely adopted.
Carbon offsets generate carbon credits, but not all offsets become tradable credits. Understanding the distinction is key to accurate climate accounting.
| Attribute | Carbon Credit | Carbon Offset |
|---|---|---|
| Nature | Tradable unit | Action or project |
| Basis | Market-based | Project-based |
| Primary use | Used for trading | Used for claiming neutrality |
| Registration | Verified & registered | May or may not be tradable |
Carbon credit prices vary based on the type of project, location, standard & registry, market demand, vintage year, and co-benefits such as social impact and biodiversity outcomes. Compliance markets are highly regulated and can differ significantly from voluntary markets.
Carbon credits can be purchased by a wide range of entities for purposes including carbon neutrality, net-zero claims, ESG reporting, CSR & sustainability goals, and supply chain emissions (Scope 3).
Carbon credits are a supporting tool, not a replacement for internal emission reduction. The correct net-zero hierarchy prioritizes reducing emissions first, then using high-quality credits to offset what remains.
Conduct a thorough audit of all emission sources across scopes 1, 2, and 3.
Implement operational changes, efficiency upgrades, and cleaner technologies.
Switch to renewable energy, low-carbon supply chains, and sustainable practices.
Purchase verified credits for unavoidable emissions after all reduction efforts are exhausted.
High-quality carbon credits are issued under recognized standards that ensure additionality, permanence, no double counting, transparency, and third-party verification.
Verified Carbon Standard — one of the most widely used voluntary carbon market standards globally.
Rigorous certification ensuring projects deliver real, measurable, and additional climate and development benefits.
International Carbon Registry providing transparent and reliable credit issuance and retirement tracking.
India is developing its own Carbon Credit Trading Scheme (CCTS) under the Ministry of Power and Bureau of Energy Efficiency (BEE), aligned with India's net-zero 2070 goal.
Poor-quality credits and false claims lead to greenwashing—not the concept itself. Carbon credits are legitimate when used responsibly.
Governments and international bodies are tightening standards for credit quality and market integrity.
Demand for removal-based credits over avoidance-based credits is growing rapidly.
Artificial intelligence is transforming Measurement, Reporting, and Verification processes for greater accuracy.
Carbon credits are increasingly integrated with ESG reporting and supply-chain disclosures.
Carbon credits will increasingly become more regulated, more transparent, more expensive, and more outcome-driven as the global climate transition accelerates.
Carbon credits are a powerful climate finance tool when used responsibly. They enable businesses and governments to act on climate change while funding real-world emission reduction and removal projects.