The terms carbon offset and carbon offset credit (or simply carbon credit) are often used interchangeably, though technically they can mean slightly different things. A carbon offset broadly refers to a reduction in greenhouse gas (GHG) emissions – or an increase in carbon storage via land restoration, forest conservation or sustainable agriculture. A carbon offset is used to compensate for emissions occurring elsewhere.
A carbon credit on the other hand represents an emission reduction of one metric tonne of carbon dioxide (CO2), or an equivalent amount of other GHGs, from the atmosphere. A carbon credit is a transferrable instrument certified by authorities — governments or other independent certification bodies. An emitter can purchase carbon credits to pay for their underlying GHG reduction goals.
“So a credit becomes tradable, like an offset, because of a very real reduction in emissions, but oftentimes the reduction is from an activity you may not have thought of, like changing a business practice, flying less, turning off equipment at night, and so on,” according to Carbonfund.org.
So essentially, carbon credit stands for the right to emit a certain amount of carbon that they have paid for. If a company uses fewer credits than it has bought, it can trade and sell its credits to other parties who need them or keep them for future offsetting.
To further simplify it in layman’s terms, you take a flight that generates certain carbon footprint. Now if you are a corporation or public institution looking to neutralize that carbon footprint, you may choose to:
- Not take flights henceforth and switch to some sustainable modes of working such as virtual meetings for your work; or
- Purchase the equivalent amount of carbon credits to neutralize the impact of your carbon footprint. These carbon credits are generated via third-party sustainable projects, such as forest conservation or sustainable farming like CarbonTerra’s initiative of partnering with farmers.
Carbon offset allows companies to balance out the climate impact they are causing by directly reducing the carbon footprint in their operations internally or paying for sustainable practices anywhere on Earth. In that way, a carbon credit is a kind of carbon offset technique, but need not be from a carbon offset project. It can be from any third-party certified project that reduces or mitigates GHG emissions anywhere on Earth.
The whole idea of carbon credit basically amounts to making the offenders pay for sustainable practices elsewhere. The bigger your carbon footprint, the more you pay for purchasing carbon credits to offset your negative impact. The money goes to sustainable practices like eco-friendly agriculture or growing forests.
And because GHGs, once they are emitted, mix in the atmosphere, and impact the warming of the Earth as a whole, it does not matter where exactly they are reduced.
Carbon credits make it easier, practical and more cost-effective for organizations to continue with their businesses even while contributing to green practices and working towards mitigating climate change.
“The key concept is that offset credits are used to convey a net climate benefit from one entity to another,” according to the Carbon Offset Guide, an initiative by the Carbon Offset Research and Education (CORE) initiative of the Stockholm Environment Institute (SEI) and Greenhouse Gas Management Institute (GHGMI).