Carbon Credit

A carbon credit (often called a carbon offset) is a financial instrument that represents a tonne of CO2 (carbon dioxide) or CO2e (carbon dioxide equivalent gases) removed or reduced from the atmosphere from an emission reduction project, which can be used, by governments, industry or private individuals to offset damaging carbon emissions that they are generating.

Carbon credits are associated with either removing existing CO2 or CO2e emissions from the atmosphere in the case of carbon sequestration from forests and planting of trees or the reduction of future CO2 or CO2e emissions from renewable energy and energy efficiency projects that displace fossil fuel power generation production or industrial processes.

Carbon credits originate from a range of emission reduction activities associated with the removal of existing emissions from the atmosphere and the reduction of future emissions. These are commonly called "methodologies".

Afforestation and reforestation activities are a key means by which existing emissions can be removed from the atmosphere and carbon credits created while construction of a wind farm rather than a coal-fired power station may create carbon credits through reducing future emissions.

Carbon credits originated through these emission reduction activities can be created under a variety of voluntary and compliance market mechanisms, schemes and standards. Some of these instruments have been established so countries can comply with their mandatory Kyoto targets and others provide avenues for voluntary offsetting purposes.

Some schemes around the world clearly deliver more environmental benefits than others. Developing parts of the world produce the most carbon credits by far, often these locations are essentially considered environmental 'hot spots' as they lack the appropriate laws, regulations and funding that usually exist in developed regions. Due to these reasons they have the most room for improvement and therefore offer the most environmental benefits if worthy improvements are introduced.