A carbon credit is a unit of measurement representing the reduction of one metric ton of carbon dioxide or other greenhouse gases. Carbon credits can be bought and sold as a means of financing the reduction of greenhouse gas emissions.
There are two main types of carbon credits:
- Compliance carbon credits: These credits are created and traded by governments as part of a compliance-based greenhouse gas reduction system, such as the European Union’s Emissions Trading System (ETS) or the Clean Development Mechanism (CDM) under the United Nations Framework Convention on Climate Change (UNFCCC).
- Voluntary carbon credits: These credits are created and traded by individuals, businesses, or other organizations as a voluntary means of offsetting their greenhouse gas emissions. Voluntary carbon credits can be used to offset emissions from various sources, such as transportation, energy use, or industrial processes.
In both cases, carbon credits can be used to fund emission reduction projects, such as renewable energy projects or reforestation efforts. The goal of carbon credits is to reduce greenhouse gas emissions and mitigate the effects of climate change.