What Are Carbon Credits? Definition, Meaning & How They Work

Carbon credits are permits that represent the right to emit a specific amount of carbon dioxide or an equivalent greenhouse gas. While they are often linked with carbon markets and offsetting schemes, their core purpose is to cap and reduce overall emissions by funding climate projects and encouraging efficiency.

What Is a Carbon Credit?

A carbon credit is a certificate that allows the holder to emit one tonne of carbon dioxide or the equivalent amount of another greenhouse gas. Credits exist in both regulated and voluntary markets.

• Regulated markets: such as the UK Emissions Trading Scheme, where governments set a cap on total emissions and issue credits within that limit.
• Voluntary markets: where businesses or individuals buy credits to claim carbon neutrality or support environmental projects.

How Do Carbon Credits Work?

Organisations, governments, or individuals purchase credits to cover emissions they cannot avoid. These credits are generated by verified projects that reduce or remove greenhouse gases, such as:

• Reforestation
• Renewable energy installations
• Methane capture from landfills
• Efficient cookstove distribution

Once purchased for use, a credit is “retired” to ensure it cannot be claimed by another party. This prevents double counting and maintains integrity.

For a fuller understanding of how credits are linked to real world projects, read Carbon Offsets: What Is Carbon Offsetting and How It Works, which explains the connection between offsets and credits, and how they operate in practice.

Carbon Credits and Emissions Reduction

Carbon credits can help to decrease carbon emissions by setting caps in regulated systems and funding projects in voluntary systems. However, they should complement direct emissions cuts, not replace them. Long term climate progress depends on reducing emissions at source while using credits for unavoidable impacts.

To explore how reducing emissions at the source works alongside carbon credit systems, read What Is Carbon Reduction and How Do We Achieve a Low-Carbon Future?, which explains practical strategies for cutting emissions before relying on credits.

UK and Global Carbon Credit Systems

In the UK, the Emissions Trading Scheme covers energy intensive industries, the power sector, and aviation within Europe. Companies must surrender enough credits to cover their emissions or face penalties. 

Internationally, carbon credits also play a role in corporate net zero strategies. However, voluntary markets have faced criticism for inconsistent quality and transparency, leading to reforms aimed at strengthening standards.

Benefits and Criticisms of Carbon Credits

Potential benefits of carbon credits include directing investment to climate projects, providing flexibility for meeting targets, and raising awareness of emissions.

Criticisms of carbon credits include the risk of delaying meaningful action, variable project quality, and weak regulation in voluntary markets. These concerns underline the need for strict verification and a focus on genuine reductions.

How Individuals Can Engage with Carbon Credits

People can support certified projects through credible providers, but should first reduce their own emissions wherever possible. This means prioritising behaviour changes and clean energy adoption before purchasing credits.

Frequently Asked Questions

What is a carbon credit in simple terms?

A carbon credit is a permit to emit one tonne of carbon dioxide or its equivalent, used within systems designed to cap or offset emissions.

How are carbon credits created?

Credits come from verified projects that remove or avoid greenhouse gases, such as tree planting, wind farms, or methane capture from waste sites.

Are carbon credits the same as carbon offsets?

Not exactly. Carbon credits are tradable permits, while carbon offsets refer to the actual projects or activities that generate credits.

Do carbon credits reduce emissions?

They can, but only when part of a wider strategy that prioritises cutting emissions at the source. On their own, credits cannot solve the climate crisis.

How can I buy credible carbon credits?

Look for providers that are independently certified and transparent about project quality, location, and permanence.

Sources:

• https://news.mit.edu/2024/explained-carbon-credits-0228
• https://www.rspb.org.uk/helping-nature/what-we-do/influence-government-and-business/nature-and-climate-emergency/carbon-credits

About Carbon Copy

Carbon Copy exists to turn individual concern for climate and nature into collective impact by helping people connect locally and create real change together. We believe the fastest way to create change is to share it. We tap into a powerful truth: copying is human nature. When action is visible and easy to replicate, it spreads. It’s about people stepping in, inspired by what others have done and copying what works. Carbon Copy offers a place to start, with a national collection of climate action stories, place-by-place climate and nature plans, a popular podcast and blog, and capacity building for organisations across public, private and third sectors.