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What Are Carbon Credits? How Does A Carbon Offset Work?

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Today, there’s a serious need to cut back emissions to save the environment. Global warming has reached a point where experts have dire prospects for the future.

This is where carbon credits and offsets enter the picture. Essentially, companies can account for their unavoidable generation of emissions by purchasing carbon credits through certified activities. Doing so ensures a company is making an effort to preserve the environment from the harmful effects of greenhouse gas emissions.

But how do they work? This guide should provide you with what you need to know about these initiatives. 

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What Are Carbon Credits And Offsets? 

Carbon credits and offsets are typically used interchangeably, but both function through different mechanisms. 

Carbon credits or allowances work like permission slips for generating emissions. These allow businesses to generate a certain amount of carbon dioxide or greenhouse gases up to a certain extent, encouraging them to minimize their carbon footprint. When a company holds one credit, it allows the generation of a ton of carbon dioxide or an equal amount of other greenhouse gases. 

On the other hand, carbon offsets work through trading among different companies. For example, if one company removes a carbon unit from the atmosphere, it can produce a carbon offset. In turn, other companies can purchase more to minimize their carbon footprint. 

Carbon offsets are considered a practical and effective approach to dealing with climate change and promoting sustainability.

A Close Look At Carbon Footprints

It’s crucial to remember that every product or service you utilize or consume produces some level of emissions.  

A straightforward example is the carbon dioxide emissions from burning natural gas to warm up your home. Another example is buying a new shirt, which has its share of emissions associated with cotton cultivation, ranging from the energy used in the processing, manufacturing, and delivery process. There are also emissions produced when using the air conditioning system or the dryer in your home. The carbon footprint refers to the total emissions of all these activities and more.

Luckily, there are simple measures to limit your carbon footprint. Some of these include switching to LED lights, investing in a hybrid or electric vehicle, or maintaining a vegetable-based diet with less meat and dairy.

How Do Carbon Offsets Work? 

Both individuals and companies consider carbon offsetting willingly or as a way to comply with regulations. 

In most cases, it involves working with a broker to remove a portion of carbon from the atmosphere, usually in another part of the globe. The process involves calculating the emission level so the broker can charge a fee based on it. Then, the broker will invest a portion of the money in a project that minimizes carbon emissions. The cost of carbon credits is likely to increase significantly in the coming years.  

A certificate or proof is given to show that a company or individual purchased carbon credits, which doubles as proof of compliance.

Do They Actually Help? 

If you take a closer look at carbon credits and offsets, they hold some value in mitigating the progress of climate change. When individuals or companies invest in carbon credits, the emissions are still generated. But the investment serves as funding that other entities utilize to curb the production of greenhouse gas emissions.

Some examples of projects that involve carbon offsetting include: 

  • Waste management projects that aim to obtain methane generated in landfills from waste disposal 
  • Tree planting projects that help areas facing deforestation
  • Support for renewable energy research
  • Innovations in food production that maximize yields while reducing resource consumption

All of these initiatives contribute to the reduction of the greenhouse effect on the environment, making investing in carbon credits and offsets worthwhile.

Where Can You Buy Carbon Credits? 

If you’re planning to do your part in preserving the environment, you can readily purchase carbon credits from companies that support clean energy and carbon sequestration projects.  

When it comes to the market for carbon credit, the actual size varies due to diverse regulations and geographical factors. The voluntary carbon market mainly comprises companies buying carbon offsets to maintain corporate social obligations. As for compliance associated with regulatory carbon caps, the market is an immense one.

Final Thoughts 

Deciding to offset your carbon footprint will give you peace of mind knowing that you’re doing something beneficial for the planet. Even a single carbon credit, which equals one ton of carbon dioxide from the atmosphere being removed, is a step in supporting sustainability. Consider your options today.


Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to

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