A carbon credit is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent (tCO2e) equivalent to one tonne of carbon dioxide.

Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). One carbon credit is equal to one metric tonne of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources.

There are two main markets for carbon credits; Compliance Market credits Secondary / Verified Market credits (VERs)

How do carbon credits impact global emissions?

Carbon credits are an immediate answer to reducing the amount of Green House Gas (GHGs) emissions in the atmosphere. The generation and sale of carbon credits funds carbon projects which would not have gone ahead i.e additional to business as usual. Carbon credits also help lower the costs of renewable and low carbon technologies as well as assisting in the technology transfer to developing countries.

What are the different types of carbon projects?

Carbon credits can be generated from various types of projects including:

  • Renewable energy: a switch from fossil fuels to a ‘clean’ energy e.g. wind and solar energy
  • Forestation and Afforestation: The planting of new trees as trees sequester and store CO2 e.g. forest regeneration
  • Energy efficiency: reducing emissions though an increase in energy efficiency e.g. installation of energy-efficient machinery
  • Methane capture: avoiding methane emissions through capture and burning to create energy e.g. landfill methane capture

Project eligibility for carbon credits depends on whether a project follows one of the Kyoto Protocol’s project-based mechanisms or an independent voluntary standard.

How are carbon credits issued?

All projects listed on CTX are certified, verified and registered, ensuring that actual emission reductions take place before the credits are issued thus providing a secure and transparent environment for carbon trading. The process of getting credits issued varies depending on the credit type i.e (CERs vs VERs). However, below is a very general overview of the process a project developer needs to follow before credits can be issued:

  • The selection of a approved methodology which quantifies the GHG benefits of a project
  • The development of a Project Design Document (PDD) which describes the whole project in detail including the project crediting period and the demonstration of additionality
  • An independent auditor reviews the PDD and validates the project
  • The project is monitored to ensure that GHG reductions are occurring
  • The monitoring reports are verified by an independent auditor
  • The project gets credits issued into a appropriate registry account