What is a carbon credit?

Answer 1

According to the Integrity Council for the Voluntary Carbon Market (ICVCM), “a carbon credit is a tradable intangible instrument that is issued by a carbon-credit program, representing a GHG emission reduction to, or removal from, the atmosphere equivalent to one metric ton of carbon dioxide equivalent, calculated as the difference in emissions from a baseline scenario to a project scenario.”

In laymen terms, we can have a flow chart:

Human activities, especially factories/industries or vehicular emissions generate greenhouse gas emissions (mostly carbon dioxide), this traps heat into the atmosphere, resulting in global warming. Somewhere else, a project that avoids required carbon emissions (like power generation by renewable energy, electricity is needed, if it wasn't for the renewable energy, it would have been generated by thermal plants with a lot of carbon emissions, so by generating electricity with renewable source, the project avoided those emissions) or absorbs existing carbon in the atmosphere (like a forest conservation project).

Every ton of carbon avoided or absorbed is equal to one carbon credit. So if a project was avoiding 100 tons of carbon, it will be eligible to earn 100 carbon credits. These carbon credits can be sold to the factories or industries in question that are emitting carbon in the first place. If they are emitting 100 tons of carbon, they can buy these carbon credits from the said project and offset their emissions. By buying the credits, the factory essentially ""balances out"" their emissions, even though they still create some CO2.

It means that a carbon avoidance or absorption project gets an extra monetary incentive apart from their regular income and emitters get some time to decarbonize completely by contributing to emission reduction instead of a knee-jerk reaction. In other words, carbon credits are like the shock absorbers for industry decarbonization.

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