A carbon credit or offset represents a one-tonne reduction in or removal of greenhouse gas (GHG) emissions that compensate for CO2 emitted somewhere else. At their core, both carbon offsets and carbon credits are environmental accounting mechanisms. They provide a way to combat climate change and balance pollution levels. Similarly, once a carbon offset or credit is purchased, that credit is “retired” and cannot be sold or reused.
While the terms “offset” and “credit” seem synonymous, each serves a unique purpose with different products. Offsets represent GHGs that have been removed or avoided somewhere in the world. Credits represent the failure or success of meeting an emissions quota imposed by the government.
Both work to help the environment in different ways. Carbon credit markets dissuade further pollution by setting industry caps and forcing corporations to pay more in costs or reduce internal emissions. Carbon offset markets represent the direct removal of greenhouse gases from the atmosphere paid for voluntarily by corporations looking to neutralize their carbon footprint.
Producing a carbon offset introduces a technique called carbon “sequestration”, which means “to hide away”. Essentially, the GHGs are taken from the atmosphere and “hidden away”, which negates their impact on the planet. Multiple techniques achieve sequestration. Some include planting trees (reforestation), storing carbon in manufactured devices, capturing methane at landfills, and even using technology to convert those emissions into a usable product.
Independent companies develop carbon offset projects and pull and store GHG emissions from the atmosphere. Then they sell those offsets to companies that emit (or have emitted) GHGs. When you hear the words “carbon offset”, think about the term “compensation”. Offsets represent the reduction, avoidance, destruction, or sequestration of the equivalent of a ton of carbon in one place to offset or “compensate” an emission taking place somewhere else.
The term carbon credit refers to a tradable certificate or permit that shows a company, industry, or country has paid to remove a certain amount of carbon dioxide from the atmosphere. They are a way to control greenhouse gas emissions under the Kyoto Protocol, an international treaty intended to combat climate change. Under the treaty, countries receive carbon credits based on their historical emission levels. They could then trade these credits among themselves to meet their targets.
This system is supposed to incentivize countries to reduce their emissions. For example, a country with a high emission output could purchase credits from a country with a lower emission output. Project types between credits and offset overlap due to similar desired outcomes. Hence, we witness reforestation, clean energy, biomass, and avoided conversion efforts. When you hear the words “carbon credit”, think about the term “allowance.” Carbon credits represent the maximum amount of GHGs an entity is allowed to emit.
Although there are apparent differences between offsets and credits, they also share similarities, the most important being their shared goal of combatting the climate crisis. While they aren’t perfect, they are some of the most effective tools we currently have and need to be further scaled if we want a chance at a sustainable future.
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