What are carbon credits and carbon offsets?

The terms are often used interchangeably, but carbon credits and carbon offsets operate on different mechanisms.

Carbon credits , also known as carbon allowances, act as emission permit certificates. When a company buys a carbon credit, usually from the government, it gets a permit to produce one ton of CO emissions ₂ . With carbon credits, carbon revenue flows vertically from companies to regulators, although companies that end up with excess credits can sell them to other companies.

It offsets it horizontally and trades carbon revenues between companies. When a company removes a unit of carbon from the atmosphere as part of its normal business operations, it can create a carbon offset. Other companies can then buy this carbon offset to reduce their own carbon footprint.

Note that the two terms are sometimes used interchangeably, and carbon offsets are often referred to as "offset credits". Nevertheless, this distinction between compliance credits and voluntary offsets should be kept in mind. (Jennifer L, more at carboncredits.com)