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Carbon credit

Published: 21 Feb 2022

Last Updated: 21 May 2024

A carbon credit is a tradable certificate or unit representing the reduction of one tonne of carbon dioxide equivalent (tCO2e) from the atmosphere. Carbon credits are generated by project developers who avoid or remove greenhouse gases (GHGs) and then are sold to other market players. Carbon credits are retired or eliminated when used to offset other emissions, avoiding double counting.

Carbon credits are a tradable commodity. There is, however, no fixed or market agreed price for a carbon credit. Credits can range in price from one dollar to thousands of dollars and are determined by the project developer. Projects which cost large amounts to develop, such as direct air capture plants, have more expensive credits compared to forest conservation credits that have considerably lower development costs.

Carbon credits in this context are part of the voluntary carbon market (VCM) and are also commonly referred to as a voluntary carbon unit (VCU). Voluntary carbon credits are different from carbon ‘permits’ or ‘allowances’ which operate under compliance markets. There are no legal standards that voluntary carbon credits must adhere to in order to be claimed as a carbon credit. This makes it extremely important to verify that the carbon credit’s intrinsic claim (to have reduced one tCO2e) from the atmosphere is legitimate. This is the purpose of carbon registries.