Carbon credit.

In plain English

A carbon credit is a permission or a claim, depending on which market it sits in, and each one stands for a single metric ton of carbon dioxide or its equivalent. In a compliance market, a regulator caps total emissions and issues allowances that covered companies must hold against what they emit, and those allowances trade. In a voluntary market, a project such as reforestation or methane capture is certified to have avoided or removed emissions, and buyers purchase the resulting credits to offset their own. Credit quality depends on whether the reduction would have happened anyway, which is called additionality, and on whether it lasts.

01Why it matters

Voluntary credits vary enormously in quality and verification, so a company's claim of being carbon neutral tells you nothing until you know what kind of credits it bought and who certified them.

02The math, step by step

A company emits 100,000 tons and buys 100,000 credits at $12 each, spending $1.2 million. If a third of those projects would have happened without the funding, roughly 33,000 tons of the claimed offset is accounting rather than reduction.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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