What are Carbon Credits?

4 min readJul 1


You’ve heard the term, haven’t you? Carbon credits. It’s all over the news, mentioned in economic reports, environmental discussions, and corporate boardrooms. But what exactly is this elusive concept of ‘carbon credits’? Well, my friend, you’re about to find out.

The Genesis of Carbon Credits

Let’s step back to the beginning, shall we? Imagine this: it’s the late 20th century, and the world is starting to grapple with the impact of climate change. Scientists everywhere are raising the alarm, urging us to reduce our greenhouse gas emissions. Now, here’s where carbon credits come into the picture.

A carbon credit, in the simplest terms, is a permit that allows a company or a country to emit a certain amount of greenhouse gases. Think of it like a ‘get out of jail free’ card, but for pollution. One carbon credit is equivalent to one tonne of carbon dioxide emissions. Seems straightforward, right? But hold on, it gets even more interesting!

The Nitty-Gritty of Carbon Trading

Here’s the real twist: these carbon credits are tradable. Yep, you heard it right, they’re like stocks on an environmental exchange. This is known as ‘carbon trading’. They can even be traded on a blockchain through a carbon-credit marketplace, as we are working on this model right now at Omchain. So, why would anyone want to trade pollution permits?

Well, consider this: Company A is environmentally conscious and manages to cut down its emissions, leaving it with surplus carbon credits. On the other hand, Company B, with a carbon-intensive operation, finds it difficult to reduce its emissions. Company B can now buy the surplus credits from Company A. This allows Company B to meet its emission targets without immediately transforming its operations, while Company A gets a financial incentive for its green efforts. Pretty neat, right?

The Bigger Picture: Climate Change Mitigation

Now, why does all of this matter? Well, it’s all about the big ‘C’ — Climate change. The carbon credit system is one way to combat this global problem. Putting a price on carbon emissions, it provides an economic incentive to reduce greenhouse gas emissions.

But wait, there’s more! The funds generated from carbon trading can be used to finance renewable energy projects, forest conservation efforts, and other sustainable initiatives. So, it’s not just about curbing emissions, but also promoting green growth.

Wrapping it Up

In essence, carbon credits are a market-based solution to a complex environmental problem. They offer a way to reduce greenhouse gas emissions while also incentivizing sustainable practices. So, the next time you come across ‘carbon credits’ in a news report or a corporate sustainability document, you’ll know exactly what it’s all about!


1. How is the value of a carbon credit determined?

The value of a carbon credit is determined by the market, based on supply and demand. Factors like regulatory policies, corporate sustainability goals, and public sentiment toward climate change can influence the price.

2. Can individuals buy carbon credits?

Yes, individuals can buy carbon credits to offset their personal carbon footprint. This is often done through third-party organizations that invest in carbon reduction projects.

3. What’s the difference between carbon credits and carbon offsets?

While they are often used interchangeably, there’s a subtle difference. A carbon credit is a tradable permit representing the right to emit one tonne of carbon dioxide. A carbon offset, on the other hand, is a reduction in emissions made to compensate for emissions made elsewhere.

4. How are carbon credits verified?

Carbon credits are verified by independent third-party organizations. These organizations ensure that the projects generating the credits are indeed reducing or removing greenhouse gas emissions.

5. Are there criticisms of the carbon credit system?

Yes, there are several criticisms of the carbon credit system. Some argue that carbon credits don’t have a real impact on the environment due to issues around additionality, permanence, and co-benefits​1​. Critics also worry about greenwashing, where companies might claim to offset emissions without investing in legitimate mitigation projects​1​.

Others express concern that carbon credits give companies a “free pass to pollute,” allowing them to offset emissions instead of reducing them​1​. There are also contrasting views on technology-based solutions. Some people believe these technologies won’t work due to their cost and energy requirements, while others think they are the only way forward​1​.

Despite these criticisms, it’s important to remember that carbon credits are just one tool in the larger fight against climate change. Their effectiveness ultimately depends on how they are implemented and regulated.




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