A carbon credit is a permit or a certificate that represents the reduction of one ton of CO2 or its equivalent in greenhouse gas (GHG). These credits are tradable in the carbon market to facilitate GHG emissions reduction activities.
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Carbon credits can be traded in two different types of the carbon market: compliance and voluntary market. In the compliance market, enterprises must comply with national legal requirements on the maximum GHG emission allowance, and when their emissions exceed the allowance, they can buy carbon credits to compensate for their exceeded GHG emissions. One type of carbon credit traded in the compliance carbon market is called Certified Emissions Reductions (CERs) issued under Clean Development Mechanism (CDM). Unlike the compliance market, companies purchase carbon credits in the voluntary market to offset the GHG they emit voluntarily. Some notable voluntary carbon credits are Voluntary Emissions Reductions (VERs) such as Verified Carbon Standard (VCS), Gold Standard (GS), and Global Carbon Council (GCC).
CDM, which was developed under the Kyoto Protocol, allows developed countries to reduce GHGs emissions by funding clean projects in developing countries. CDM projects generate 1 CERs for each tCO2e they reduce from the baseline, which will be bought by developed countries. VCS, developed by Verra, is used for the voluntary market with the credit unit of Verified Carbon Units (VCUs). When considering GS, the credits can be both compulsory and voluntary. Besides emission reduction, this standard also focuses on fulfilling the United Nation's Sustainable Development Goals (SDGs). GCC is a newly developed carbon offsetting program that aims for global GHG emission reduction in different aspects, including GHG emission reduction verification, sustainability, environment and social safeguard. It also helps GHG emission reduction projects avoid double counting in order to join Carbon Offsetting and Reduction Scheme for Internation Aviation (CORSIA).
The carbon crediting system does not only help to reduce GHG emissions and lessen the impacts of climate change, but it also helps developing countries grow toward a sustainable economy.
Thuong Bui
References
https://cdm.unfccc.int/about/index.html
