Carbon Credit

What is Carbon Credit?

Carbon credits are the financial instruments that underpin both voluntary and compliance carbon markets. They serve two distinct purposes depending on the market type. In compliance markets (such as the UK Emissions Trading Scheme), a credit — called an allowance — represents the legal right to emit one tonne of CO₂e. Regulated entities must surrender enough allowances to cover their actual emissions; if they emit less, they can sell surplus allowances. In voluntary markets, a carbon credit represents a verified emission reduction or removal of one tonne of CO₂e, which an organisation purchases to compensate for its own emissions.

Compliance market credits are created and regulated by governments. The UK ETS, which replaced the UK's participation in the EU ETS after Brexit, issues UK Allowances (UKAs). These are allocated to regulated installations (power stations, large industrial sites, aviation operators) through a combination of free allocation and auctioning. The total number of allowances — the cap — decreases each year, driving the overall market towards lower emissions. The price of UKAs fluctuates based on supply, demand, and policy — in recent years ranging between £30 and £80 per tonne.

Voluntary market credits are generated by specific projects — renewable energy installations, forestry, methane capture, direct air capture — and verified by independent standards bodies. The major registries include Verra (which issues Verified Carbon Units, VCUs), Gold Standard (which issues Gold Standard Verified Emission Reductions, GS-VERs), and UK-specific schemes like the Woodland Carbon Code (issuing Woodland Carbon Units, WCUs) and the Peatland Code.

Each credit in a reputable registry has a unique serial number and can only be "retired" (used for a claim) once, preventing double-counting. When an organisation purchases and retires a credit, it is permanently removed from circulation and cannot be resold.

The voluntary carbon credit market has grown rapidly, but quality varies significantly. High-quality credits from removal-based projects (afforestation, DACCS, biochar) command premium prices. Lower-quality avoidance credits, particularly from large-scale renewable energy projects in countries where renewables are already economically viable (raising additionality concerns), are cheaper but face increasing scrutiny.

How Climatise Helps

Climatise calculates the precise volume of emissions you need to offset, broken down by source — giving you the data to make informed purchasing decisions in the voluntary market. The platform also tracks your offset retirement against your reported footprint for audit and disclosure purposes.

Frequently Asked Questions