A carbon offset or carbon credit is a way to offset emissions of carbon dioxide or other greenhouse gases. It is a reduction, avoidance, or elimination of emissions to offset emissions released elsewhere.[13]​[14][15]​ A carbon credit represents a reduction or elimination of emissions of one metric ton of carbon dioxide or the equivalent amount of greenhouse gases that contribute equally to global warming (CO2e).[16]​[17]​ Carbon credits are a way of pricing carbon, along with carbon taxes and subsidies. Credits can move between the various markets in which they are sold.[18]​[19]​[20]​[21]​.

There are several labels for one-ton emission reductions, including "Voluntary Emission Reduction" (VER) or "Certified Emission Reduction" (CER). The label depends on the particular program certifying a reduction project.[22] At COP27, negotiators agreed to define offsets and credits issued under Article 6 of the Paris Agreement as "mitigation contributions" to discourage claims of carbon neutrality by buyers.[23] Certification organizations such as Gold Standard also have detailed guidance on what descriptive terms are appropriate for offset buyers and credits.[24]​.

Offsets from previous projects must be in addition to what would have happened without the project.[11]​[25]​ For future projects, forward crediting is a process in which credits are issued for projected emissions reductions, which can be claimed by buyers even before the reduction activities have occurred.[26]​ When credit holders claim GHG reductions, they must retire the carbon credits" so that they cannot be transferred or used.[27]​ Carbon offsets can be tracked and reported within an offset certification record, which may contain project information such as project status, project documents, credits generated, ownership, sale and retirement.[28]​.

The year in which a carbon emissions reduction project—typically the year in which a third party verifies the project—[29]​[30]​ generates the carbon offset credit is known as the vintage year.[31]​.

In New York, on May 9, 1992, the United Nations Framework Convention on Climate Change was adopted, which recognizes that the problem of climate change is real. The convention sets the objective of stabilizing greenhouse gas emissions, within a period sufficient for ecosystems to adapt naturally to climate change, without global food production being threatened and for international economic development to continue in a sustainable manner.[32]​.

This convention asks industrialized countries to periodically carry out inventories (measurements) of gas emissions, in order to know the real scope of the problem and verify that the measures applied have met the objectives. The emissions from 1990 are taken as a reference point in order to compare and verify the results. In this way, the countries that are part of the Convention will take into account the need to reduce their greenhouse gas (GHG) emissions in their decisions regarding agriculture, industrial activities, energy, and use of natural resources, among others. Currently the Convention is considered almost global since 195 nations have been ratified.

On December 11, 1997, the Kyoto Protocol (Japan) was adopted,[33]​ which puts the treaties of the Convention into practice. There were 39 industrialized countries and the European Union that committed to stabilizing greenhouse gas emissions. Unlike the Convention, which only encouraged countries to reduce their GHG emissions, the Kyoto Protocol committed them to take action to achieve this objective.

The countries that were part of the Protocol recognized that over the past 150 years they had been primarily responsible for the high levels of greenhouse gas emissions, resulting among other things from the burning of fossil fuels. For the Protocol, developed countries must be treated differently than developing countries. The former are required to regulate their emissions since they are the main polluters due to their industrial activities, while the latter are only motivated to do so understanding that their economic position is not optimal to take drastic measures.

The Protocol has influenced governments to make laws and policies to fulfill their commitments, and companies to consider the impact their activities have on the environment. It should be noted that only parties or countries that have accepted and ratified the Protocol will be forced to comply with the rules. One of the three proposals that were included in the Protocol to stabilize GHG emissions were carbon credits, presented in 1993 by the Argentine economist Graciela Chichilnisky.

The system offers economic incentives for private companies to contribute to the improvement of environmental quality and to regulate the emissions generated by their production processes, considering the right to emit CO as a redeemable good and with a price established in the market. The transaction of carbon credits—a carbon credit represents the right to emit one ton of carbon dioxide—makes it possible to mitigate the generation of greenhouse gases, benefiting companies that do not emit or reduce emissions and making those that emit more than permitted pay.

GHG emission reductions are measured in tons of CO equivalent, and are translated into Certificates of Reduced Emissions (CER). A CER is equivalent to one ton of CO that is no longer emitted into the atmosphere, and can be sold on the carbon market to Annex I countries (industrialized, according to the nomenclature of the Kyoto protocol). The types of projects that can apply for a certification are, for example, generation of renewable energy, improvement of energy efficiency of processes, reforestation, cleaning of lakes and rivers, etc.

In an effort to reduce emissions that cause climate change on the planet, such as global warming or the greenhouse effect, the main industrialized countries - with the exception of the United States - have established an agreement that establishes quantified goals for reducing greenhouse gas (GHG) emissions for 2012: the Kyoto Protocol. To comply, projects to capture or abate these gases in developing countries are being financed, crediting such reductions and considering them as if they had been made in their territory.

However, critics of the system of selling emissions bonds or permits argue that the implementation of these mechanisms aimed at reducing CO emissions will not have the desired effect of reducing the concentration of CO in the atmosphere, nor of reducing or slowing the rise in temperature. According to the study by Wigley, 1999, the implementation of the Kyoto Treaty fulfilled by all countries in the world, including the United States, will cause a reduction of 28 parts per million (ppm) by 2050, or will reduce the temperature predicted for that year by 0.06 °C or, if not, will delay the date by which the said increase should be met by 16 years.

In short, carbon credits are credits that are issued in the carbon market. Developed countries can finance emission reduction abatement or capture projects in other (developing) nations, crediting said reductions as if they had been made in their own territory, lowering their compliance costs.

A company that reduces its CO2 emissions, voluntarily, can sell this reduction to developed countries that are obliged to reduce their emissions, generating economic and environmental benefits.[34]​.

Compliance market credits represent the majority of the compensation and credit market today. The transaction volume in the voluntary carbon markets was 300 MtCO2e in 2021. In comparison, the transaction volume in the carbon compliance market was 12 GtCO2e,[35]​ and global greenhouse gas emissions in 2019 were 59 GtCO2e.[36]​.

Currently, several exchanges trade carbon credits and allowances, both in the spot and futures markets. These include the Chicago Mercantile Exchange, CTX Global, the European Energy Exchange, the Global Carbon Credit Exchange gCCEx, the Intercontinental Exchange, MexiCO2, Nasdaq Commodities Europe and Xpansiv.[37] Many companies now participate in emissions reduction, offsetting and sequestration programs, which generate credits that can be sold on an exchange.

As of early 2022, there were 25 emissions trading systems operational worldwide. They are located in jurisdictions that represent 55% of the world's GDP. These systems cover 17% of global emissions.[38]​ The European Union Emissions Trading System (EU-ETS) is the second largest trading system in the world after the Chinese national carbon trading scheme. It covers more than 40% of European GHG emissions.[39]​ California's cap-and-trade program covers approximately 85% of statewide GHG emissions.[40]​.

The Vatican engaged in a fraud that would present the Vatican as "carbon neutral" by planting trees in Hungary. Cardinal Paul Poupard accepted the first compensations, which were compared to indulgences.[41] Not a single tree was planted.[42]

A carbon offset or carbon credit is a way to offset emissions of carbon dioxide or other greenhouse gases. It is a reduction, avoidance, or elimination of emissions to offset emissions released elsewhere.[13]​[14][15]​ A carbon credit represents a reduction or elimination of emissions of one metric ton of carbon dioxide or the equivalent amount of greenhouse gases that contribute equally to global warming (CO2e).[16]​[17]​ Carbon credits are a way of pricing carbon, along with carbon taxes and subsidies. Credits can move between the various markets in which they are sold.[18]​[19]​[20]​[21]​.

There are several labels for one-ton emission reductions, including "Voluntary Emission Reduction" (VER) or "Certified Emission Reduction" (CER). The label depends on the particular program certifying a reduction project.[22] At COP27, negotiators agreed to define offsets and credits issued under Article 6 of the Paris Agreement as "mitigation contributions" to discourage claims of carbon neutrality by buyers.[23] Certification organizations such as Gold Standard also have detailed guidance on what descriptive terms are appropriate for offset buyers and credits.[24]​.

Offsets from previous projects must be in addition to what would have happened without the project.[11]​[25]​ For future projects, forward crediting is a process in which credits are issued for projected emissions reductions, which can be claimed by buyers even before the reduction activities have occurred.[26]​ When credit holders claim GHG reductions, they must retire the carbon credits" so that they cannot be transferred or used.[27]​ Carbon offsets can be tracked and reported within an offset certification record, which may contain project information such as project status, project documents, credits generated, ownership, sale and retirement.[28]​.

The year in which a carbon emissions reduction project—typically the year in which a third party verifies the project—[29]​[30]​ generates the carbon offset credit is known as the vintage year.[31]​.

In New York, on May 9, 1992, the United Nations Framework Convention on Climate Change was adopted, which recognizes that the problem of climate change is real. The convention sets the objective of stabilizing greenhouse gas emissions, within a period sufficient for ecosystems to adapt naturally to climate change, without global food production being threatened and for international economic development to continue in a sustainable manner.[32]​.

This convention asks industrialized countries to periodically carry out inventories (measurements) of gas emissions, in order to know the real scope of the problem and verify that the measures applied have met the objectives. The emissions from 1990 are taken as a reference point in order to compare and verify the results. In this way, the countries that are part of the Convention will take into account the need to reduce their greenhouse gas (GHG) emissions in their decisions regarding agriculture, industrial activities, energy, and use of natural resources, among others. Currently the Convention is considered almost global since 195 nations have been ratified.

On December 11, 1997, the Kyoto Protocol (Japan) was adopted,[33]​ which puts the treaties of the Convention into practice. There were 39 industrialized countries and the European Union that committed to stabilizing greenhouse gas emissions. Unlike the Convention, which only encouraged countries to reduce their GHG emissions, the Kyoto Protocol committed them to take action to achieve this objective.

The countries that were part of the Protocol recognized that over the past 150 years they had been primarily responsible for the high levels of greenhouse gas emissions, resulting among other things from the burning of fossil fuels. For the Protocol, developed countries must be treated differently than developing countries. The former are required to regulate their emissions since they are the main polluters due to their industrial activities, while the latter are only motivated to do so understanding that their economic position is not optimal to take drastic measures.

The Protocol has influenced governments to make laws and policies to fulfill their commitments, and companies to consider the impact their activities have on the environment. It should be noted that only parties or countries that have accepted and ratified the Protocol will be forced to comply with the rules. One of the three proposals that were included in the Protocol to stabilize GHG emissions were carbon credits, presented in 1993 by the Argentine economist Graciela Chichilnisky.

The system offers economic incentives for private companies to contribute to the improvement of environmental quality and to regulate the emissions generated by their production processes, considering the right to emit CO as a redeemable good and with a price established in the market. The transaction of carbon credits—a carbon credit represents the right to emit one ton of carbon dioxide—makes it possible to mitigate the generation of greenhouse gases, benefiting companies that do not emit or reduce emissions and making those that emit more than permitted pay.

GHG emission reductions are measured in tons of CO equivalent, and are translated into Certificates of Reduced Emissions (CER). A CER is equivalent to one ton of CO that is no longer emitted into the atmosphere, and can be sold on the carbon market to Annex I countries (industrialized, according to the nomenclature of the Kyoto protocol). The types of projects that can apply for a certification are, for example, generation of renewable energy, improvement of energy efficiency of processes, reforestation, cleaning of lakes and rivers, etc.

In an effort to reduce emissions that cause climate change on the planet, such as global warming or the greenhouse effect, the main industrialized countries - with the exception of the United States - have established an agreement that establishes quantified goals for reducing greenhouse gas (GHG) emissions for 2012: the Kyoto Protocol. To comply, projects to capture or abate these gases in developing countries are being financed, crediting such reductions and considering them as if they had been made in their territory.

However, critics of the system of selling emissions bonds or permits argue that the implementation of these mechanisms aimed at reducing CO emissions will not have the desired effect of reducing the concentration of CO in the atmosphere, nor of reducing or slowing the rise in temperature. According to the study by Wigley, 1999, the implementation of the Kyoto Treaty fulfilled by all countries in the world, including the United States, will cause a reduction of 28 parts per million (ppm) by 2050, or will reduce the temperature predicted for that year by 0.06 °C or, if not, will delay the date by which the said increase should be met by 16 years.

In short, carbon credits are credits that are issued in the carbon market. Developed countries can finance emission reduction abatement or capture projects in other (developing) nations, crediting said reductions as if they had been made in their own territory, lowering their compliance costs.

A company that reduces its CO2 emissions, voluntarily, can sell this reduction to developed countries that are obliged to reduce their emissions, generating economic and environmental benefits.[34]​.

Compliance market credits represent the majority of the compensation and credit market today. The transaction volume in the voluntary carbon markets was 300 MtCO2e in 2021. In comparison, the transaction volume in the carbon compliance market was 12 GtCO2e,[35]​ and global greenhouse gas emissions in 2019 were 59 GtCO2e.[36]​.

Currently, several exchanges trade carbon credits and allowances, both in the spot and futures markets. These include the Chicago Mercantile Exchange, CTX Global, the European Energy Exchange, the Global Carbon Credit Exchange gCCEx, the Intercontinental Exchange, MexiCO2, Nasdaq Commodities Europe and Xpansiv.[37] Many companies now participate in emissions reduction, offsetting and sequestration programs, which generate credits that can be sold on an exchange.

As of early 2022, there were 25 emissions trading systems operational worldwide. They are located in jurisdictions that represent 55% of the world's GDP. These systems cover 17% of global emissions.[38]​ The European Union Emissions Trading System (EU-ETS) is the second largest trading system in the world after the Chinese national carbon trading scheme. It covers more than 40% of European GHG emissions.[39]​ California's cap-and-trade program covers approximately 85% of statewide GHG emissions.[40]​.

The Vatican engaged in a fraud that would present the Vatican as "carbon neutral" by planting trees in Hungary. Cardinal Paul Poupard accepted the first compensations, which were compared to indulgences.[41] Not a single tree was planted.[42]