Carbon credit

What is a carbon credit ?

Carbon credits are exchangeable certificates that allow the owner the right to emit a certain amount of carbon dioxide, with one carbon credit representing one ton of carbon dioxide. 

Who uses carbon credits? 

Carbon credit is a general term that can apply under various international regulatory systems concerning the mitigation of greenhouse gas emissions. Companies are automatically granted a set number of credits corresponding to their industry. For example, an oil company is granted a set number of credits which are determined to be the appropriate amount for their activity and scale. 

If the company goes over its prescribed emissions limit, it must either: 

  • Buy credits from other companies that have gone under the emissions limit
  • Use its saved credits from previous years. 

Conversely, if the company stays under its limit, it can: 

  • Save its credits for later, or
  • Sell surplus credits to other companies. 

Businesses and organizations can also obtain carbon credits through virtually any type of certified product that involves reducing, avoiding, or capturing carbon emissions. In Europe, this process is regulated by the European Union Emissions Trading System.