The Ultimate Guide to Understanding Carbon Credits • Carbon Credits
2. What Are Carbon Credits and Carbon Offsets?
The terms are frequently used interchangeably, but carbon credits and carbon offsets operate on different mechanisms.
Carbon credits, also known as carbon allowances, 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.
Offsets flow horizontally, trading carbon revenue between companies. When one company removes a unit of carbon from the atmosphere as part of its normal business activity, it can generate a carbon…
