TL;DR
Carbon credits are tradable certificates that represent the avoidance or removal of one metric ton of carbon dioxide (or its equivalent in other greenhouse gases) from the atmosphere. They play a key role in voluntary carbon markets, helping companies offset emissions by supporting projects that avoid or capture carbon. Understanding carbon credits is essential for businesses aiming for net-zero goals.
Introduction
As the climate crisis intensifies, the push for carbon neutrality has entered the mainstream. Terms like “carbon offset” and “carbon neutral” dominate headlines - but one key concept underpins these efforts: carbon credits. If you’re wondering what carbon credits are, how they work, and why they matter, this guide offers a clear, jargon-free explanation for beginners and professionals alike.
What is a carbon credit?
Carbon credits are tradable certificates that represent the avoidance or removal of one metric ton of carbon dioxide (or its equivalent in other greenhouse gases) from the atmosphere. These credits are part of a broader effort to cap, reduce, and ultimately remove harmful emissions.
The basic idea? To take responsibility for those emissions that is not possible to reduce, the company can support projects outside of the value chain that avoid or remove the equivalent amount of emissions - such as:
- Forest conservation or reforestation
- Renewable energy (solar, wind, hydro)
- Methane capture from landfills
- Soil carbon sequestration
Each time such a project prevents or removes one metric ton of CO₂e from entering the atmosphere, it can generate a carbon credit that someone else can buy to offset their emissions.
How certified carbon credits work (step-by-step)
| Step | Description |
|---|---|
| 1. Project initiation | A project developer designs a carbon-avoidance or carbon-removal project. |
| 2. Validation | A third-party body validates that the project meets scientific and regulatory standards. |
| 3. Monitoring & verification | The project is monitored and emissions reduced are verified. |
| 4. Issuance of credits | For every metric ton of CO₂e reduced or removed, one carbon credit is issued. |
| 5. Sale of credits | Credits are sold directly to buyers (corporations or individuals). |
| 6. Retirement | Once used to offset emissions, the credit is “retired” and can’t be sold again. |
Why carbon credits matter
- Supports climate action
Carbon credits funnel financing to high-impact climate projects that may not receive traditional investment.
- Helps businesses meet net-zero goals
Carbon credits allow companies to offset emissions they can’t yet eliminate, while working toward long-term sustainability. It is important to note that companies still need to work with reducing their emissions and buying carbon credits is a complementary strategy.
- Enhances ESG reporting
Investors and regulators increasingly expect transparent emissions reporting. Carbon credit use shows climate responsibility.
- Enables global emissions reduction
Credits link efforts globally - carbon emissions is a global problem and it is possible to fund the avoidance or removal of carbon dioxide regardless anywhere in the world to help reduce global warming. It is however recommended that the company buys credits that is connected to where the company operations or value chain.
- Carbon credit vs carbon Offset
These terms are often used interchangeably, but they’re not identical:
Term Definition Carbon credit A certificate representing one metric ton of CO₂e avoided or removed. Carbon offset The actual act of compensating emissions by buying and retiring a credit. In short: A carbon credit is the product. A carbon offset is what you do with it.
- Things to look out for when buying carbon credits
While carbon credits play a critical role in climate mitigation, not all credits are created equal. These are things to consider as a buyer.
- Double counting
Sometimes emissions reductions are claimed by both the project country and the buyer. This undermines credibility.
- Additionality
Projects must prove that the emissions reductions wouldn’t have happened without the carbon finance.
- Permanence
Carbon avoidance and carbon removals have different permanence, which is something to consider when investing in carbon credits.
Read our article What are Permanence, Leakage, and Additionality in Carbon Offsets?
- Lack of transparency
Some come from poorly verified or low-impact projects. Only invest in credits with high-integrity standards like Verra, Gold Standard, puro.earth and Isometric.
- How to buy carbon credits on the Voluntary Carbon Market
To buy carbon credits on the voluntary carbon market, start by selecting a trusted carbon offset provider, preferably one that is independent. Choose a verified project aligned with your values (e.g., reforestation, renewable energy) and calculate the number of credits needed to match your emissions. Once purchased, the credits should be retired in your name to ensure they’re not resold.
Atmoz carbon offset experts can help to identify projects suitable to match your business strategy and budget among our wide portfolio of verified climate projects. Read more about our offering within Carbon offsetting.
- Conclusion
Carbon credits are a vital tool in the fight against climate change, enabling organizations to take responsibility for their carbon footprints. While not a silver bullet, they serve as a bridge to a low-carbon future - especially when paired with strong emissions reductions and verified, high-impact climate projects.
Whether you’re a sustainability officer, investor, policymaker, or concerned citizen, understanding what carbon credits mean - and how to use them responsibly - is essential for contributing to global climate goals.
- Frequently Asked Questions; Carbon credits simplified
What does one carbon credit equal?
One metric ton of carbon dioxide equivalent (CO₂e) reduced, avoided, or removed from the atmosphere.
Are all carbon credits the same?
No. Their quality depends on the project type, verification method, and permanence. Always look for third-party certified credits such as Verra, Gold Standard, puro.earth or Isometric.
How much does a carbon credit cost?
Prices vary widely based on what type of credit it is. Avoidance carbon credits typically cost between 10-30 euro and Carbon removal credits ranges between 50-800 euro.
What is “retiring” a carbon credit?
Once a credit is used to offset emissions, it’s permanently removed from circulation (retired) to prevent reuse.
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