Carbon Credits Explained: What They Are And How They Work
Carbon credits are tradable certificates, each representing one tonne of greenhouse gas emissions either avoided or removed, serving as a crucial financing mechanism for climate mitigation projects. The market differentiates between compliance allowances, government-issued under cap-and-trade systems, and voluntary offsets, independently certified units from projects like reforestation or methane destruction. High-quality credits are defined by critical attributes such as additionality, rigorous monitoring, verification, permanence, and transparent registry tracking, adhering to standards from bodies like the IC-VCM and SBTi. Buyers, from regulated emitters to corporations pursuing net-zero goals, procure these units to meet legal obligations or compensate hard-to-abate residual emissions, always prioritising internal operational reductions. While compliance markets are mandatory and policy-driven, the voluntary market is discretionary, with prices varying based on project integrity, type, and co-benefits. The entire lifecycle, from project design to credit retirement, ensures unique, auditable outcomes, which are essential for making credible and transparent climate claims. Canada, like many jurisdictions, operates both compliance and voluntary carbon markets, presenting opportunities particularly in areas such as biomethane production.
Carbon credits are tradable certificates, each representing one tonne of greenhouse gas emissions either avoided or removed, serving as a crucial financing mechanism for climate mitigation projects. The market differentiates between compliance allowances, government-issued under cap-and-trade systems, and voluntary offsets, independently certified units from projects like reforestation or methane destruction. High-quality credits are defined by critical attributes such as additionality, rigorous monitoring, verification, permanence, and transparent registry tracking, adhering to standards from bodies like the IC-VCM and SBTi. Buyers, from regulated emitters to corporations pursuing net-zero goals, procure these units to meet legal obligations or compensate hard-to-abate residual emissions, always prioritising internal operational reductions. While compliance markets are mandatory and policy-driven, the voluntary market is discretionary, with prices varying based on project integrity, type, and co-benefits. The entire lifecycle, from project design to credit retirement, ensures unique, auditable outcomes, which are essential for making credible and transparent climate claims. Canada, like many jurisdictions, operates both compliance and voluntary carbon markets, presenting opportunities particularly in areas such as biomethane production.
Carbon credits, offsets and allowances: the differences
These terms are often blended together, but they drive different mechanisms and claims. Getting carbon credits explained clearly helps buyers avoid greenwashing, pick the right instruments, and report accurately against targets.
Carbon allowances (compliance credits): Government-issued “permission slips” under cap‑and‑trade that allow a company to emit a set amount of GHGs. The cap shrinks over time. Allowances are tradable inside regulated systems such as the EU ETS, California’s programme and RGGI.
Carbon offsets (voluntary credits): Independently certified units from projects that avoid emissions (e.g., methane destruction) or remove CO2 (e.g., reforestation). Buyers retire offsets to compensate residual emissions or to contribute to mitigation beyond their own footprint.
“Carbon credits” (umbrella term): Industry shorthand used for both allowances and offsets. Always check what the unit actually is—type, standard, registry, and vintage—before making claims or booking them in your carbon account.
What one carbon credit represents
At its core, one carbon credit represents a single metric tonne of greenhouse gases either avoided or removed, expressed as CO2‑equivalent. Standards use 100‑year global warming potentials to convert gases like methane or nitrous oxide into a common unit, so buyers can compare outcomes across project types. The unit itself is outcome‑based: it doesn’t tell you the technology used, only that a verified tonne of CO2e has been prevented from entering the atmosphere or taken out of it. Think of the credit as the measured climate result; quality signals come from how that tonne was achieved and evidenced.
Unit value: 1 credit = 1 tCO2e (using 100‑year GWPs).
Mechanism: Avoidance (e.g., methane destruction) or removal (e.g., reforestation).
Time stamp (vintage): The year the reduction/removal occurred.
Standard/registry: The programme certifying and tracking the unit.
Project metadata: Location, methodology, monitoring and verification details.
How carbon credits move from issuance to retirement
A carbon credit starts life as a measured climate outcome. A project designs to an approved methodology, sets a baseline, and demonstrates additionality. An independent validator checks the plan; the project then monitors performance and a third‑party verifier reviews the data. If the reductions or removals are confirmed, the programme issues credits on a registry with unique serial numbers, tagged by project, methodology and vintage. From there, credits can be transferred between accounts until a buyer “retires” them to make a claim. Think design → validate → monitor → verify → issue → transfer → retire.
Project listing and validation: Methodology selected, baseline set, additionality evidenced; independent validation completed before issuance.
Monitoring and verification (MRV): Ongoing metering and sampling; accredited auditors verify reported tCO2e.
Issuance and serialisation: Registry mints units with unique IDs and metadata to prevent double counting.
Trading and custody: Credits move between registry accounts; ownership and vintage remain transparent.
Retirement and claims: Final holder cancels units; a retirement record is created and can support disclosures and net‑zero accounting—carbon credits explained in practical steps.
Who issues, verifies and registers credits
In compliance systems, governments or market regulators create and issue allowances; in the voluntary carbon market, independent “crediting programmes” certify and issue project-based units. Verification is done by accredited third parties, not by the project itself. Registries then serialise every unit and provide the public ledger that prevents double counting and shows ownership and retirement—this is carbon credits explained in governance terms.
Issuers (compliance): Regulators behind cap‑and‑trade schemes (e.g., EU ETS, California, RGGI) mint allowances according to the cap, allocate or auction them, and adjust supply over time.
Issuers (voluntary): Crediting programmes such as Verra and Gold Standard issue project credits after independent review against approved methodologies.
Validators and verifiers: Accredited auditors validate project design ex‑ante and verify monitored results ex‑post (MRV) before issuance of tCO2e units.
Registries: Programme or government registries assign unique serial numbers, track transfers, and record retirements to ensure transparency and avoid double use.
Quality frameworks: The Integrity Council for the Voluntary Carbon Market (IC‑VCM) sets Core Carbon Principles (2024) as a global quality threshold, while SBTi guidance informs how corporates use and claim credits within net‑zero strategies.
Who buys credits and why
Buyers fall into two camps. In compliance systems, regulated emitters purchase allowances (and, where permitted, offsets) to meet legal caps and avoid penalties. In the voluntary market, companies and individuals buy credits to compensate hard‑to‑abate, residual emissions or to contribute to climate action. With carbon credits explained as measurable, serialised outcomes, motivations centre on cost, risk, reputation and impact.
Compliance emitters: Power, industry and fuel distributors buy to satisfy cap‑and‑trade obligations when internal cuts are slower or costlier than the market price.
Corporates with net‑zero goals: Use high‑quality offsets to address residual Scope 1–3 while prioritising real operational reductions.
Brand and stakeholder expectations: Credits support ESG/CSR commitments and customer promises when claims are backed by verified retirements.
Bridging and hedging: Firms buy to bridge to future technologies and hedge policy or carbon price risk.
Individuals: Purchase offsets via third‑party providers (e.g., at checkout or through subscription) to balance travel or lifestyle emissions.
Financial players: Traders and funds provide liquidity and price discovery; some investors seek exposure to carbon prices and mitigation outcomes.
Notably, automakers have bought regulatory credits from cleaner peers, illustrating how compliance demand can be material.
Compliance markets versus voluntary markets
At a glance, compliance markets are mandatory and policy-driven, while the voluntary carbon market (VCM) is discretionary and buyer-driven. In compliance systems, regulators set a cap, issue tradable allowances, and tighten supply over time; firms surrender units to avoid penalties. In the VCM, independently certified project credits are bought and retired to compensate residual emissions or to contribute to mitigation. Both are one‑tonne CO2e units, but the governance, claims, and risk profiles differ—this is carbon credits explained in market terms. Some compliance systems allow a limited share of eligible offsets; most demand is for allowances. Scale also differs: compliance trading was roughly US$1.5 trillion in 2024 (Refinitiv), while the VCM was about US$2.5 billion in 2023 and forecast to grow sharply.
Driver: Compliance = legal obligation; Voluntary = net‑zero/CSR.
Supply: Compliance = regulator mints; Voluntary = projects issue via standards.
Price signal: Compliance prices shaped by caps and penalties; VCM prices vary by project quality and co‑benefits.
Assurance: Compliance = statutory oversight; Voluntary = MRV plus meta‑standards (e.g., IC‑VCM CCPs).
Use of units: Compliance = surrender allowances (plus limited offsets where allowed); Voluntary = retire credits for claims.
Key compliance systems around the world
Compliance markets turn legal caps into tradable allowances, creating the largest share of global carbon trading. As of 2024, carbon pricing initiatives operate in 46 national and 37 sub‑national jurisdictions, covering about 23% of global greenhouse gas emissions. By value, compliance trading reached roughly US$1.5 trillion in 2024, with the EU ETS the largest market and China’s national ETS next. Here are the key systems you should know—carbon credits explained in policy terms.
EU ETS: The benchmark cap‑and‑trade system for power and industry and the world’s largest compliance market.
China ETS: A national emissions trading system that ranks second by size.
United States: California (launched 2013; covers large power, industrial plants and fuel distributors; often cited as fourth largest behind the EU, South Korea and China). RGGI spans 11 Northeast states. Washington (2023) and Oregon (2022) expanded state‑level cap‑and‑invest.
Other cap‑and‑trade jurisdictions: Canada, UK, New Zealand, Japan, South Korea operate compliance schemes in various forms.
New additions: Indonesia launched trading in late 2023; Vietnam began a pilot in 2024; Malaysia plans an ETS in early 2025.
These systems drive demand for allowances—and, where permitted, limited use of offsets—anchoring prices and compliance strategies globally.
The voluntary carbon market landscape today
The voluntary carbon market (VCM) has become a meaningful, if uneven, channel for financing climate action. In 2023 it reached about US$2.5 billion in value with more than 250 million credits traded, and multiple analyses project growth toward US$100–250 billion by 2030. Corporate net‑zero commitments and stakeholder pressure drive demand, while scrutiny has pushed the market to professionalise. With carbon credits explained as serialised, outcome‑based units, today’s focus is firmly on integrity, transparency and verifiable impact.
Quality convergence: The Integrity Council’s Core Carbon Principles (2024) set a global threshold for high‑quality units; SBTi guidance tightens how companies use and claim credits within net‑zero plans.
Differentiated pricing: Prices vary widely by project type, standard, permanence, additionality, co‑benefits and vintage; buyers pay premiums for stronger evidence and co‑benefits.
Market plumbing: Credits are certified by programmes (e.g., Verra, Gold Standard) and tracked on registries; most trade is OTC via brokers with growing exchange venues and clearer retirement records.
Usage patterns: Companies prioritise internal abatement, then use credits for hard‑to‑abate residuals or contribution claims—retiring units to anchor disclosures and avoid double counting.
Outlook: New national systems and evolving rules are increasing alignment between voluntary supply, corporate claims and public policy without replacing the VCM’s role in mobilising private capital.
How projects generate credits: avoidance versus removals
Projects earn units by delivering verified climate outcomes against an approved methodology. In simple terms, credits come from either preventing new emissions (avoidance) or taking greenhouse gases out of the atmosphere (removals). With carbon credits explained this way, the difference is about direction of flow: stop a tonne from being emitted, or pull a tonne back and store it. Both rely on robust baselines, additionality, and MRV to confirm real tCO2e outcomes using 100‑year GWPs.
Avoidance: Prevent emissions that would otherwise occur. Typical routes include destroying methane from waste/biogas, displacing fossil power with renewables, improving industrial efficiency, or avoiding deforestation.
Removals: Capture and store atmospheric carbon. Examples include reforestation/afforestation, soil carbon enhancement, biochar, direct air capture, or biogenic CO2 captured and durably stored.
Quality considerations differ. Avoidance hinges on credible baselines and leakage control; removals add durability risks (how long carbon stays stored). Methane destruction is a common high‑impact avoidance pathway, while removals often attract scrutiny on permanence and monitoring. Both must pass independent verification before issuance.
Common project types and methodologies
Most units stem from a small set of project families certified under approved methodologies. These methodologies (from programmes like Verra or Gold Standard, and government systems) define baselines, additionality tests, monitoring and quantification rules, and how to address leakage and permanence—so one credit transparently equals one verified tonne of CO2e. With carbon credits explained this way, choosing among types becomes a question of data quality, durability and fit to your footprint.
Renewable electricity and heat displacement: Metered MWh from wind, solar, hydro or biomass displace fossil generation using grid emission factors.
Methane capture, destruction or use: Landfill, wastewater, manure and biogas projects flare CH4 or upgrade it to biomethane; strong impact given methane’s high GWP and straightforward metering.
Industrial gas abatement: Destruction of high‑potency gases (e.g., N2O, HFCs) via monitored reactors; typically tight MRV and high additionality.
Energy efficiency and clean cooking: Efficient cookstoves, building retrofits and process optimisation reduce fuel use; MRV blends metering with statistically robust surveys.
Nature‑based solutions: Afforestation/reforestation, improved forest management and avoided deforestation (REDD+); rely on carbon stock inventories, buffers for permanence and leakage controls.
Carbon capture and storage (CCS/DAC): Capturing CO2 at source or from air and storing it durably; credits hinge on verified capture, transport and storage.
Soil carbon and biochar: Practices that increase soil organic carbon or add stable biochar; sampling protocols and durability assumptions drive crediting.
Next, we look at premium categories and co‑benefits—where projects like blue carbon can command higher prices for verified wider impacts.
Premium credit categories and co-benefits, including blue carbon
Premium credits command higher prices when they pair high‑integrity tonnes with measurable social and ecological co‑benefits. Under the IC‑VCM’s Core Carbon Principles, buyers look for strong additionality, robust MRV, permanence and safeguards. With carbon credits explained through this lens, categories often priced at a premium include high‑quality removals and nature projects that deliver adaptation and biodiversity outcomes alongside mitigation.
Blue carbon is the standout. Credits from tidal marshes, mangroves and seagrass protect coasts and lock carbon in biomass and sediments at high densities; mangroves alone can store up to four times more carbon than terrestrial forests. Premiums reflect multiple gains: climate mitigation, risk reduction for coastal communities, and restored fisheries and habitats—when verified under credible methodologies and transparently recorded on registries.
Biodiversity and livelihoods: Species recovery and community benefits.
Coastal protection: Wave attenuation and storm buffering.
Water quality: Pollutant filtering and sediment trapping.
Biogas and biomethane credits: methane avoidance and CO2 capture
When organic waste in digesters, lagoons or landfills breaks down, it releases methane—over 20 times more heat‑trapping than CO2 on a 100‑year basis. Capturing that gas and either destroying it or upgrading it to biomethane prevents those emissions and can generate verified units. With carbon credits explained in biogas terms: you’re paid for the measured tonnes of CH4 avoided (as CO2e), and, where programmes allow, for durably captured biogenic CO2 separated during upgrading.
Methane avoidance/destruction: Flaring, thermal oxidation or engine/boiler use credits the CH4 destroyed; MRV uses flow meters, gas analysers and uptime logs.
Upgrading to biomethane: The creditable component is the avoided methane release; the energy sale is separate. Robust gas cleanup improves reliability and verified yield.
Biogenic CO2 capture: If the separated CO2 is geologically stored or otherwise durably sequestered, additional credits may be issued under applicable methodologies.
MRV shorthand: tCO2e = CH4 captured × GWP100; 1 credit = 1 tCO2e.
Quality signals: Strong additionality, continuous monitoring, and controls that minimise leakage ensure tonnes are real and defensible.
What makes a high-quality credit
Quality is the difference between a credible climate outcome and a reputational liability. High‑quality carbon credits are built on conservative accounting, independent oversight, and transparent records. The Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles (2024) provide a common threshold, while SBTi guidance shapes how companies use and claim units within net‑zero strategies. With carbon credits explained as serialised outcomes, the checklist below helps buyers separate robust tonnes from risky ones.
Additionality: The reduction/removal wouldn’t happen without carbon finance.
Sound baselines: Conservative, evidenced counterfactuals; no inflated “would‑have‑happened” scenarios.
Rigorous MRV: Accredited validation ex‑ante and verification ex‑post; metering, sampling and audit trails.
Permanence management: Durable storage, monitoring, and buffers/guarantees for reversal risk (especially nature‑based).
Leakage control: Prevents shifting emissions outside the project boundary.
No double counting: Unique serial numbers, transparent registry records, clear ownership and single retirement.
Safeguards and co‑benefits: Social and biodiversity protections; documented impacts beyond carbon.
Transparency: Public methodologies, monitoring reports, verifier statements, and clear vintages.
Standards alignment: Issued under recognised programmes and consistent with SBTi‑aligned claims.
Credible usage: Retire before claiming; match recent vintages to current residual emissions.
Quality tends to price at a premium—and for good reason: it lowers legal, accounting and brand risk while delivering real climate impact.
The project lifecycle: from idea to issued units
Turning an idea into issued units follows a disciplined pathway under an approved standard. Developers scope the opportunity, choose a crediting programme and methodology, and build a conservative baseline and additionality case. A Project Design Document (PDD) and monitoring plan are prepared, safeguards addressed, and an independent validator reviews the design. After implementation, the project monitors results; an accredited verifier audits the data. If reductions/removals are confirmed, credits are issued on a registry with unique serials—carbon credits explained in project terms: originate → validate → monitor → verify → issue.
Origination & screening: Identify source of avoidance/removal; prelim feasibility, risks and finance.
Methodology & PDD: Select standard/method; define baseline, additionality, MRV plan.
Safeguards & stakeholders: Document social/biodiversity protections and consultations.
Validation (ex‑ante): Accredited body checks design against the methodology.
Implementation: Install/operate technology or land practices; begin metering per MRV.
Monitoring: Collect auditable data on tCO2e using 100‑year GWPs.
Verification (ex‑post): Independent audit of results; quantify eligible tonnes.
Issuance: Programme mints serialised units on its registry, ready for transfer or retirement.
This discipline underpins integrity and price—quality in, quality out.
Registries, trading venues and retirement
Think of registries as the source of truth. They serialise every unit, attach metadata (project, methodology, location and vintage), record ownership changes, and show when a unit is cancelled so it can’t be used again. In compliance systems, the same function applies to allowances; regulated entities later surrender them against verified emissions. This is carbon credits explained in plumbing terms: issuance and custody live on registries; trading moves title; retirement ends the unit’s life.
Registries: Programme or government ledgers that mint unique serial numbers, track transfers, and publish retirement records to prevent double counting and support disclosure.
Trading venues: Most voluntary credits change hands over-the-counter via brokers; exchanges list standardised contracts. Settlement is a registry-to-registry account transfer.
Retirement/surrender: Claims are only credible after the final holder retires (VCM) or surrenders (compliance) the unit. The registry creates a time‑stamped, irrevocable record that anchors reporting.
Good practice: Retire the same or recent vintage as the reporting year and cite serials in disclosures for auditability.
What carbon credits cost and what drives price
Prices vary widely across compliance and voluntary markets. In regulated systems, allowance prices are anchored by policy: BloombergNEF expected averages around US$42 per metric ton in California and US$76 in Europe in 2024. In the voluntary market, there’s no single price; units clear at different levels depending on integrity and attributes—carbon credits explained as one tonne doesn’t mean one price.
Market type: Compliance allowances track caps, penalties and auctions; VCM prices reflect bilateral negotiation and liquidity.
Integrity/quality: Additionality, rigorous MRV, permanence buffers, and IC‑VCM’s CCP alignment lift prices.
Project type: High‑potency gas abatement often prices lower; durable removals and blue carbon command premiums.
Vintage and location: Newer vintages and projects in high‑scrutiny regions tend to price higher.
Co‑benefits: Verified biodiversity and community outcomes add value.
Policy and demand: Tightening caps, corporate net‑zero demand, and macro energy trends move curves.
Eligibility and risk: Credits eligible for compliance use, with clear legal title and low delivery risk, trade richer.
All‑in cost = unit price + brokerage + registry fees + MRV/insurance, which matters for budgeting and comparing options.
Benefits, risks and common criticisms
If you’re weighing credits against internal abatement, the trade‑offs are practical: speed and cost versus integrity and reputation. Used well, credits finance real climate outcomes and manage compliance or stakeholder risk; used poorly, they invite scrutiny. With carbon credits explained as serialised, verified tonnes, here’s the balanced picture senior teams consider before buying or developing.
Mobilise finance fast: Channel private capital to proven mitigation (e.g., methane destruction, renewables) and emerging removals when capex is constrained.
Cost‑effective bridging: Cover hard‑to‑abate, residual emissions now while longer‑term decarbonisation projects ramp.
Risk management: Hedge policy/carbon price exposure in compliance systems; anchor CSR/ESG commitments with retirements.
Co‑benefits: High‑quality nature and blue carbon projects can deliver biodiversity, resilience and community outcomes.
Additionality doubts: If the activity would happen anyway, the tonne isn’t real; weak baselines inflate impact.
Permanence and leakage: Reversal risks (especially land‑based) and displaced emissions can erode benefits without buffers and controls.
Double counting/claims: Absent clear registries and rules, the same reduction can be claimed twice—by different entities or inventories.
Greenwashing risk: Offsetting must not substitute for real operational cuts; poor governance damages credibility.
Market and policy volatility: Prices, eligibility and methodologies change; liquidity can be thin in some segments.
The antidote is disciplined procurement and transparent claims—the focus of the next section.
Making credible claims with credits
Claims should be truthful, proportional to your footprint, and anchored in transparent retirements. Carbon credits explained properly are not a substitute for real cuts: prioritise internal abatement, then use high‑quality credits for residual emissions or contribution claims. Align with SBTi guidance and IC‑VCM Core Carbon Principles to keep integrity high.
Cut first: Set a decarbonisation pathway; use credits only for hard‑to‑abate, residual tonnes.
Match and cap: Claimed tonnes ≤ residual emissions for the reporting year; avoid over‑offsetting.
Retire before you claim: Quote registry serials, programme, project type, vintage, and volume.
Be precise on claim type: “Offsetting residual emissions” versus “contributing to global mitigation” (no compensation claim).
Name scopes and boundaries: State which Scope 1/2/3 sources are covered, period, and methodology.
Avoid double counting: Ensure exclusive ownership; don’t claim supplier‑owned reductions unless contracted and retired for you.
Use high‑integrity units: Prefer CCP‑approved categories, robust MRV, conservative baselines, and permanence buffers.
Keep vintages current: Retire recent vintages aligned to the reporting period.
Disclose trade‑offs: Clarify credits are a bridge while operational reductions continue.
Done well, claims withstand audit, satisfy stakeholders, and genuinely finance mitigation.
Carbon credits in Canada: systems, rules and opportunities
Canada operates compliance carbon pricing and is listed among the jurisdictions with cap‑and‑trade in some form. At the federal level, Canada’s Greenhouse Gas Offset Credit System issues tradeable offset credits that represent verified reductions in emissions or increased removals. These units are certified, registered, and can be transferred and retired; use for compliance depends on programme rules, while organisations also buy and retire credits on the voluntary market. In short, carbon credits explained in Canadian terms: regulated allowances where required, and project‑based offsets certified under a federal system, alongside provincial programmes.
Project opportunities: Methane capture and destruction from digesters, lagoons and landfills; upgrading biogas to biomethane with robust MRV of avoided CH4.
Biogenic CO2 options: Where applicable methodologies permit, separating and durably storing CO2 from upgrading may unlock additional credits.
Corporate use: Companies prioritise internal cuts, then retire high‑quality credits to address residual emissions or contribute to mitigation.
Developer advantage: Strong metering, continuous monitoring and conservative baselines improve issuance prospects and pricing in both compliance‑linked and voluntary channels.
Practical next steps for buyers and project developers
Turn intent into action with a tight plan. Prioritise your own reductions first, then use high‑integrity units for residuals or contribution claims. Keep governance front‑and‑centre: align to SBTi for usage and IC‑VCM Core Carbon Principles for quality. With carbon credits explained as serialised, auditable outcomes, the rest is disciplined execution.
For buyers
Set policy: Define eligible standards, vintages, project types, geographies and co‑benefits.
Do diligence: Check additionality, MRV, leakage, permanence, registry and serial ranges.
Contract right: Specify delivery of serials, make‑good clauses, vintage windows, and replacement of invalidated tonnes.
Retire and report: Retire in the registry before claims; disclose project, volume, vintage and tCO2e.
Screen and select methodology: Choose a recognised programme; build conservative baselines and additionality.
Design MRV early: Install metering, data logging and QA/QC to support verification (critical for methane projects).
Validate, then finance: Secure validation, offtake MOUs/ERPA, and project debt/equity.
Operate and verify: Monitor to plan; undergo third‑party verification; issue, then manage transfers/retirements via the registry.
What’s next for carbon markets
Carbon markets are moving from experimentation to standardisation. Policy coverage keeps expanding—new or piloted ETSs in Indonesia (2023) and Vietnam (2024), with Malaysia planning one for 2025—while existing systems tighten caps. The voluntary market is professionalising: the IC‑VCM’s 2024 Core Carbon Principles set a global quality floor, SBTi is sharpening corporate use of credits, and Article 6 (agreed at COP26) is enabling country‑to‑country trades. With carbon credits explained as serialised, auditable outcomes, expect the following shifts.
Convergence on integrity: Buyers and policymakers coalesce around CCP‑aligned units, transparent MRV, and precise claims.
Demand focus: High‑impact methane abatement and verified removals grow, alongside blue carbon and durable storage where methodologies apply.
Market plumbing: Greater registry transparency, clearer retirement records, and more exchange‑listed contracts complement OTC trade.
Price dynamics: Compliance prices track caps and penalties; VCM prices remain stratified by quality, permanence and co‑benefits.
Global growth: With 23% of emissions already under carbon pricing and the VCM projected to scale, disciplined project design and conservative baselines will command premiums.
Key takeaways
Carbon credits turn verified climate outcomes into tradable, serialised units that finance abatement and removals. The difference between allowances (compliance) and offsets (voluntary) matters; so do integrity signals like additionality, MRV and permanence. Prices reflect policy and quality. Credible claims require cutting first, retiring units, and clear disclosures.
Definition: 1 credit = 1 tCO2e via avoidance or removals using 100‑year GWPs.
Markets: Compliance is mandated allowances; the VCM is discretionary project credits.
Quality: Additionality, conservative baselines, rigorous MRV, permanence, no double counting; align to IC‑VCM and SBTi.
Lifecycle: Design → validate → monitor → verify → issue → transfer → retire.
Pricing: Driven by caps, integrity, project type, vintage and co‑benefits.
Opportunity: High‑impact methane abatement, durable removals, and blue carbon; strong fit for biomethane.
Planning a biogas‑to‑biomethane project? Maximise verified methane avoidance and carbon revenue with engineered upgrading and CO2 capture—start with 99pt5.