🏭What are carbon credit and carbon offset?

A carbon credit is a form of tradable permit that allows its owner to emit one ton of carbon dioxide or the equivalent amount of other greenhouse gases.

A carbon credit is the government's attempt to keep a cap on its industries' emissions of harmful greenhouse gases (abv. GHGs) by driving industrial processes in the direction of less carbon-intensive approaches in comparison with those used when there is no cost to emitting carbon dioxide and other GHGs into the atmosphere.

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According to the Environmental Defense Fund, One carbon credit is the equivalent of a 2,400-mile drive in terms of carbon dioxide emissions.

Carbon credits and carbon offsets are frequently used interchangeably, but carbon credits and carbon offsets operate on different mechanisms.

Carbon credits work like permission slips for emissions. When a company buys a carbon credit, usually from the government, they gain permission to generate one ton of CO2 emissions. With carbon credits, carbon revenue flows vertically from companies to regulators, though companies who end up with excess credits can sell them to other companies.

With carbon offsets, the revenue flow horizontally, trading carbon revenue between companies. When one company removes a unit of carbon from the atmosphere as part of their normal business activity, they can generate a carbon offset. Other companies can then purchase that carbon offset to reduce their own carbon footprint.

Credits and offsets form two slightly different markets, although the basic unit traded is the same – the equivalent of one ton of carbon emissions, also known as CO2e.