Carbon credit what is it

High-quality carbon credits adhere to a strict set of standards. These standards also highlight additional benefits beyond carbon — all South Pole projects contribute to at least 3 of the UN's Sustainable Development Goals. This could be improving health, creating better education opportunities, improving wildlife conservation or even building sustainable communities. Back to top » 5. The ICROA -approved verification standards all South Pole-related projects adhere to ensure that the project is real, verified, permanent and additional.

For transparency, carbon credits are assigned serial numbers and are issued, transferred and permanently retired in publicly accessible emission registries. Back to top » 6. This can often be the trickiest part of carbon offsetting to understand, but theoretically it's simple. That means they would not have happened unless the project was implemented. By purchasing carbon credits you are directly funding climate action and sustainable development, today.

Back to top » 7. Rising CO 2 levels is an international problem; there are no borders in the atmosphere. So, it does not matter where the project you are buying carbon credits from is located. Many of our projects operate in less economically developed countries, as there we are often able to create a bigger impact for the local community thanks to co-benefits and extra activities. For example, the Kariba project achieves its primary aim of protecting a vast expanse of forest on the shores of Lake Kariba through improving local livelihoods with training opportunities, alternative income streams and access to safe water and healthcare.

Back to top » 8. Projects reduce or remove the amount of greenhouse gas in the atmosphere in at least one of three ways. The first avoids greenhouse gas emissions, for example replacing fossil fuel-derived energy with energy from renewable sources. The second removes emissions from the atmosphere, for example, planting more trees, which sequester - or capture - carbon from the atmosphere and store it in liquid or solid form.

The third captures and destroys emissions, for example capturing methane—a GHG many times more potent than carbon dioxide—from wastewater. South Pole has hundreds of different types of climate action projects, which cover the following areas: Nature-based-solutions — including: reforestation, land restoration, forest protection, sustainable land management and agriculture.

Renewable energy — including: Hydropower projects, wind projects, solar power and geothermal. Community projects — including: improved cookstove technology, access to safe water. Waste-to-energy — including: biogas from landfill and industry and biomass. Back to top » 9. Carbon removal projects , like the name suggests, remove carbon from the atmosphere. Broadly speaking, they are split into 2 categories: natural carbon removals, like tree planting which sequesters carbon as the trees grow, and technological carbon removals, for example, direct air capture.

Find out more about our carbon removals solutions here. Carbon avoidance projects contribute to climate action by preventing carbon that would have been released into the atmosphere. This could be building a wind farm to lower reliance on fossil fuels, repairing boreholes to replace the need for purifying water by boiling it on open fires and preventing deforestation.

Back to top » In the short-term, emitting and then removing carbon from the atmosphere creates greater uncertainty and risk than simply avoiding its release in the first place. Financing avoidance today is crucial in the transition phase towards net zero emissions because it accelerates global reductions, it serves climate justice, it protects our existing carbon sinks such as forests and with them, biodiversity, and it avoids emissions of very potent GHGs such as methane that have short-term.

In short, reducing emissions and supporting projects that avoid emissions from entering the atmosphere must continue full throttle if we are to avoid catastrophic climate change.

In the coming decades, carbon removals will grow in importance as we get closer to both public and private net zero targets. Once we reach net zero, all new residual emissions must be neutralized with carbon removals.

Companies have started investing in carbon removal technologies today so they can be scaled in the future. However, this must not delay or impact urgent efforts to decarbonise nor the systemic changes needed for a future that is socially-just and environmentally sustainable.

There are a number of reasons prices of carbon credits vary, for instance: the value projects deliver beyond carbon, for example some projects empower women or have direct impacts on people's lives; varying implementation costs depending on the size and location of a project; similarly some types of technology are more expensive than others; finally, carbon pricing regulations can affect prices in the voluntary carbon markets too; finally, prices are driven to a large extent by supply and demand.

South Pole believes that carbon credits play a critical role in achieving global climate goals and supporting a just transition. Compensating unavoidable emissions through carbon projects: catalyses faster climate action, puts a price on carbon, attracts funding to eligible and deserving projects, develops and scales solutions that dramatically reduce emissions, and allows companies to do something rather than nothing on their way to net zero.

Establishing a common denomination for different greenhouse gases. CO 2 is the most abundant GHG produced by human activities, and the most important pollutant to address for limiting dangerous climate change. However, human beings create and emit numerous other GHGs, most of which have a far greater heat-trapping effect, pound for pound, than CO 2.

Fully addressing climate change will require reducing emissions of all GHGs. GWPs are defined for different time horizons, to account for differences in the residence time of different gases in the atmosphere. By convention, all carbon offset credits certified under established standards are denominated using year GWPs. This makes is easier to compare the effects of different GHGs and to denominate carbon offset credits in units of CO 2 -equivalent emission reductions.

Environmental Defense Fund. United Nations Climate Change. Center for Climate and Energy Solutions. Energy Trading. Renewable Energy. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. What Is a Carbon Credit? Key Takeaways Carbon credits were devised as a market-oriented mechanism to reduce greenhouse gas emissions.

Companies get a set number of credits, which decline over time. They can sell any excess to another company. Thus, "cap-and-trade" is an incentive to reduce emissions. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.