Carbon Credits

Carbon Credits are permits that represent the right to emit a specific amount of carbon dioxide or other greenhouse gases. One carbon Credit typically equals one ton of carbon dioxide emissions. These Credits are used in cap-and-trade systems where governments or organizations set a cap on total emissions and allow the trading of these Credits among participants to encourage reductions in greenhouse gas emissions.

For example, if a factory is able to reduce its emissions below the cap, it can sell its excess Credits to another factory that is struggling to meet its limits. This creates a financial incentive for companies to reduce their emissions and invest in cleaner technologies.

Another case is the voluntary carbon market, where companies or individuals can purchase carbon Credits to offset their emissions. For instance, a company may buy Credits from a reforestation project that sequesters carbon dioxide, effectively balancing out its own emissions.