What are carbon credits?
A community-maintained introduction. Last updated July 2026.
A carbon credit is a tradeable permit. One credit represents one metric ton of CO₂ (or equivalent greenhouse gas) removed from the atmosphere or prevented from entering it. Carbon markets, the trading systems built on these credits, put a price on carbon pollution.
How they work
- A project reduces or removes emissions. For example: a reforestation project, a wind farm displacing a coal plant, or a direct air capture facility.
- That reduction is verified by a third-party standard (Verra, Gold Standard, CAR, etc.).
- One credit = one ton of CO₂e. The project issues credits for each verified ton.
- A buyer purchases and retires the credit to offset their own emissions.
Voluntary vs compliance markets
- Compliance markets. Government-mandated cap-and-trade systems (EU ETS, California Cap-and-Trade). Companies must hold enough allowances to cover their emissions. Prices are set by regulation and auction.
- Voluntary carbon market (VCM). Companies and individuals buy credits voluntarily to meet net-zero pledges. Prices vary based on project type, location, co-benefits, and vintage.
Carbon credits vs carbon offsets
People use these interchangeably, but there is a distinction:
| Carbon credit | Carbon offset |
|---|---|
| A permit to emit one ton | The actual act of reducing or removing one ton |
| Tradeable instrument | The environmental outcome |
| “I own the right to emit” | “I paid someone else to reduce” |
The market today
The voluntary carbon market was worth ~$2 billion in 2023. More companies set net-zero targets every quarter, and demand for credits follows:
- Quality scrutiny. Media investigations have exposed questionable offset projects. Buyers increasingly demand high-integrity credits with verifiable additionality.
- CORSIA. The UN aviation offsetting scheme is driving standardization.
- Article 6. Paris Agreement rules for international carbon trading are being finalized.
- Nature-based vs tech-based. Reforestation credits dominate volume, but engineered removals (DAC, biochar, enhanced weathering) command premium prices.
Further reading
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