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Definition

Carbon Credit

A carbon credit is a tradeable unit representing one metric tonne of carbon dioxide equivalent reduced or removed by a project, recorded in a registry and retired when used for a claim.

What is a carbon credit?

A carbon credit represents one metric tonne of carbon dioxide equivalent (CO2e), a common scale for greenhouse gases, reduced or removed by a project. A carbon-crediting programme issues it after an independent third party verifies the reduction or removal. A registry, the official credit ledger, records the credit and any later retirement. Retirement takes it out of circulation so it cannot be used again.

Why do carbon credits matter to you?

A customer may ask for proof behind a carbon-neutral claim. Connect the claim period and covered emissions to retired credits. A purchase is not proof of use.

How does a carbon credit work?

An avoidance credit comes from preventing an expected release. A removal credit comes from drawing carbon dioxide from the air and storing it.

Before using a credit, record its carbon-crediting standard, project ID, registry, vintage and verification report. Vintage is the year the credited reduction or removal occurred. Additionality means the reduction or removal would not have happened without carbon-credit revenue. Permanence means stored carbon must stay stored or any later release must be compensated. The Integrity Council for the Voluntary Carbon Market (ICVCM) includes these checks in its ten Core Carbon Principles. A credit can carry a CCP label only when ICVCM has approved both its carbon-crediting programme and its credit category.

What mistakes should you avoid?

  • Using a credit without a registry retirement record.
  • Choosing by price without checking quality and vintage.
  • Subtracting credits from your reported emissions or target progress.
  • Making a claim without checking the law.

Can carbon credits support a net-zero claim?

For 2026 submissions, Science Based Targets initiative (SBTi) version 1.3.1 says credits do not count toward target progress. Residual emissions are what remains after the long-term target is met. Removal credits may neutralize, or balance, that amount.

Can credits support a product carbon-neutral claim?

Not for EU consumer marketing when the claim relies on offsetting. From 27 September 2026, EU countries must apply a ban on product claims such as "climate neutral" when they are based on offsetting greenhouse gas emissions outside the product's value chain. Elsewhere, check the claim boundary, emissions calculation, reduction evidence, retirement record and local law.

Example

In this hypothetical scenario, a customer asks a packaging supplier to prove the credits behind a 2025 carbon-neutral claim covering 120 tCO2e. The supplier first provides a public registry record showing 120 credits, each representing 1 tCO2e, retired for that named claim.

  • The project ID identifies the credited activity.
  • The vintage states the year the reduction or removal occurred.
  • The standard names the rules used to issue the credit.
  • The record also shows the quantity, retirement date, unique serial range, named beneficiary and stated purpose.

The supplier then links the retired quantity to the claim period and covered emissions. A purchase invoice or broker certificate alone does not prove the credits were taken out of circulation for that claim.

Where it comes up

ICVCM Core Carbon Principles tracking, verification, additionality and permanence testsICVCM CCPs 2, 4, 5 and 6; Assessment Framework criteria 2, 4, 8 and 9Official sourceSBTi Corporate Net-Zero Standard carbon-credit and residual-emissions rulesSBTi Corporate Net-Zero Standard Criteria V1.3.1, C12 and C28Official sourceEU ban on product carbon-neutral claims based on greenhouse gas offsettingDirective (EU) 2024/825, Annex I point 4c; applies from 27 September 2026Official source

Related terms

Carbon Markets

Carbon markets trade allowances created by law or credits issued under voluntary programmes, giving covered emissions or verified reductions and removals a price.

Carbon Neutrality

Carbon neutrality means measuring greenhouse gas emissions for a stated product, service or organisation and year, reducing them where possible, then counterbalancing the remainder with verified carbon credits.

Net-Zero

Under the SBTi Corporate Net-Zero Standard, net zero means deeply cutting greenhouse gas emissions across a company's value chain, then permanently neutralising the small amount that remains.

Science-Based Targets

A science-based target states how quickly a company will cut greenhouse gas emissions in line with a climate pathway accepted by the Science Based Targets initiative (SBTi), using a defined boundary, base year and target year.

Carbon Accounting

Carbon accounting is the process of defining a company’s greenhouse gas inventory, collecting activity data, applying emission factors, and reporting Scope 1, Scope 2, and Scope 3 emissions on a consistent basis.

Sources

Sources checked 2026-08-18

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Carbon Credit Definition | Keslio