An Easy Way to Understand Carbon Credits

Carbon credits put a price on carbon emissions to give businesses and industries a way to reduce and take accountability for their carbon footprint. Carbon credits are created when climate projects avoid or absorb emissions. When these credits are be bought, sold, or traded to compensate for an organization's emissions, they become offsets and should be "retired," preventing climate projects from selling more credits than they create.

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Carbon credits create a financial incentive for emission-reducing projects to thrive. Companies or individuals that are struggling to reduce their emissions can purchase these credits from projects that have successfully reduced more emissions than required. This essentially allows entities with higher emissions to "offset" their impact by investing in emission reduction projects elsewhere.

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Here's how carbon credits work:

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1. Industries create and reduce carbon emissions

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Industries, transportation, agriculture, and other activities release carbon dioxide and other greenhouse gases into the atmosphere, contributing to global warming and climate change. Companies and industries make efforts to reduce these emissions through various means, such as transitioning to renewable energy sources, improving energy efficiency, and implementing carbon capture and storage technologies.

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2. Offsetting carbon by investing in climate solutions

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In cases where it's challenging or economically unfeasible to completely eliminate emissions, companies and individuals can invest in climate projects that either remove or prevent an equivalent amount of carbon dioxide from entering the atmosphere. As they draw down carbon emissions with efforts like reforestation, soil restoration, or direct air capture, a credit is created for every metric ton of emissions (equivalent to 1,000 kg CO2e) they avoid or absorb. These credits can then be bought, sold, or traded in carbon markets.

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Commons has a unique portfolio approach for buying carbon offsets.

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3. Trust, transparency, and retiring credits

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Carbon credit markets can be regulated by governments or operated by independent organizations. In some cases, governments may require companies to offset a certain percentage of their emissions by purchasing carbon credits. Independent organizations often set standards to ensure the legitimacy and effectiveness of carbon reduction projects, thus maintaining the integrity of the carbon credit system.

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"Retiring" a carbon credit refers to the permanent removal of a carbon credit from circulation in order to ensure that its associated emission reduction is not double-counted or used by multiple parties. When a carbon credit is retired, it signifies that the emission reduction it represents has been accounted for and cannot be further used for offsetting purposes. This process is essential to maintain the integrity and effectiveness of carbon credit markets.

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How to buy Carbon Credits

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Carbon credits play a role in creating a financial incentive to tackle climate change by encouraging emission reductions where they are most cost-effective. However, it's important to note that while carbon credits can be an effective tool, they are not a substitute for direct emissions reductions and comprehensive climate action policies. The ultimate goal should be to transition towards a low-carbon and sustainable economy.

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When you offset with Commons, you support programs that have been rigorously vetted to maximize impact on global emissions and on local communities and ecosystems. With the Commons Climate Neutral subscription, you can automatically offset your emissions each month by supporting high-integrity climate projects that are avoiding or absorbing emissions. Download the app to start offsetting.