Carbon credit: Definition
Carbon credits, also known as carbon allowances, function as permits for emissions. When a company acquires a carbon credit, typically from the government, it gains authorisation to emit one tonne of CO2. Carbon credits create a vertical flow of carbon revenue from companies to regulators, although companies with surplus credits can sell them to others.
For Sustainability Managers
Understanding Carbon credit is essential for accurately tracking and reducing your organisation's carbon footprint.
For CFOs
Carbon credit has growing financial implications as climate regulation tightens and investors demand transparency.
For Sustainability Reporting
Accurate measurement of Carbon credit is required for credible climate reports across all major frameworks.
Related Terms
Carbon accounting
Carbon accounting involves measuring the carbon dioxide equivalents (CO2e) emitted by an organisation.
Carbon dioxide (CO2) emissions
Emissions refer to the discharge of greenhouse gases or their precursors into the atmosphere within a defined region and timeframe. Carbon dioxide emissions, also known as CO2 emissions, arise from the combustion of fossil fuels and cement production. They encompass carbon dioxide released during the use of solid, liquid, and gas fuels, as well as gas flaring.
Carbon dioxide equivalent (CO₂e)
In the context of greenhouse gases, the carbon dioxide equivalent (CO2e) represents the mass of CO2 that would have the same warming effect as the mass of the specific gas. CO2e offers a standardised measure for assessing the climate impact of all greenhouse gases.
Carbon footprint
The total greenhouse gas emissions linked to a particular product or activity, encompassing both direct and indirect emissions.
Carbon neutral
A business achieves carbon neutrality when its primary operations do not result in a net increase in greenhouse gas (GHG) emissions. This implies that a company can attain carbon neutrality without addressing its scope 3 emissions, despite these emissions accounting for the bulk of emissions for most companies. To align with the objectives of the Paris Agreement, companies must surpass carbon neutrality and strive for net-zero emissions.