What Are Carbon Credits?
Carbon credits meaning can be summarized as permits related to greenhouse gas emissions. However, their purpose and function depend on the type of market they belong to: compliance or voluntary.
Compliance Carbon Credits: In compliance markets, carbon credits are permits that allow companies to emit a certain amount of carbon dioxide (CO₂) or other greenhouse gases. One carbon credit typically equals one tonne of CO₂. These credits help companies meet mandatory emission limits set by governments or international regulations. If a company emits more than its limit, it must purchase additional credits to comply with the law. If they emit less than what they are allowed, they can resell their permits.
Voluntary Carbon Credits: In voluntary markets, carbon credits are not permits but rather certificates representing the reduction or removal of one tonne of CO₂. These credits are purchased by companies or individuals who want to offset their emissions voluntarily, even when they are not legally required to do so. The purpose is to achieve carbon neutrality, support environmental projects, or enhance sustainability credentials.
Who Issues Carbon Credits?
Compliance Credits: Issued by government agencies or international regulatory bodies. Examples include the European Union Emissions Trading System (EU ETS) and the California Cap-and-Trade Program.
Voluntary Credits: Issued by independent certification organizations such as Verified Carbon Standard (VCS), Gold Standard, and the Planetary Carbon Standard (PCS). These organizations verify emission reductions before issuing credits.
Conclusion
In summary, carbon credits meaning varies by market: in compliance markets, they are legal permits to emit CO₂, while in voluntary markets, they represent verified reductions in emissions. Understanding this distinction is key to navigating the carbon credit landscape.
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