Do Carbon Credits Really Work? How do they work?

carbon credits works

Carbon credits are measures that businesses and individuals can take to offset or mitigate their carbon footprint. They are an effective means to address climate change, global warming and encourage the use of renewable energy. The idea is that organizations and individuals can reduce greenhouse gas (GHG) emissions by activities that compensate for the emissions. There is a diverse range of activities from planting of trees or land restoration or methane capture that can compensate for emissions that happen elsewhere. 

But the question that is often asked is: do carbon credits really work and do they significantly impact climate change? Here’s a primer on how carbon credits work and their impact on global warming:

Understanding Carbon Credits and Their Mechanism

Carbon credits are designed to reduce the impact of GHG emissions or increased carbon storage by means of various activities. Using climate offsets – enterprises, governments and individuals pay someone to eliminate a given quantity of GHG from the environment. The offset happens in many ways; from buying clean burning stoves to reduce deforestation to financing alternative energy generators to displacing fossil fuels, or restoring a part of tropical forests.

The primary concept is that carbon credits can be leveraged to convey a net climate benefit from one entity to another. Since GHG’s are prevalent globally in the atmosphere, it does not matter where they are reduced. The net impact is beneficial from the climate change perspective whether an organization stops emissions causing activity or enables an equivalent activity that negates the impact anywhere in the world.  Carbon credits are designed to make it easier and effective for businesses to take action and be conscious of their carbon footprint.

Also Read:- Ultimate Guide to Understanding Carbon Credits

How entities use carbon credits

While the words carbon credits and carbon offsets are often used interchangeably, there is a nuanced difference. Carbon offsetting is the correction of GHG emissions that is used to compensate for emissions occurring elsewhere. Whereas a carbon credit is a transferable credit verified by authorities and government to denote an emission reduction of one metric tonne of CO2 or equivalent amount of other greenhouse gases as applicable. The entity that buys the carbon credit ‘retires’ it to claim the reduction towards their own GHG reduction targets.

Who verifies carbon credits?

Verification of carbon credits is a critical element to ensure that the offsetting is indeed occurring and the impact of these efforts is tangible. Several third party organizations verify the credit by evaluating them against a number of available standards. Some of these standards include The Gold Standard, Verified Carbon Standard (VCS), United Nations (UNFCCC), Climate Action Reserve (CAR), and American Carbon Registry (ACR) among others. 

The verification criteria and process assesses the calculations of avoided or contained GHG emissions to decide if the credit is legitimate. Verifiers sort through large amounts of data to provide well-documented results that show the transparency, accuracy and compliance with the standards. It can take three to six months based on the size and complexity of these projects.

Are Carbon Credits Valid and Effective?

The biggest question asked in the context of carbon offsetting is around the legitimacy. Are carbon credit programs simply an excuse to shirk off the larger responsibility towards climate change? Are these a marketing practice that provide a cover for behemoths’ climate- harming projects?

As always, the answer lies in the details. Carbon credits are an acceptable way to reduce organizational or individual carbon footprint. Yet, when you buy carbon credits it is essential to verify the source to ensure the offset is real, permanent and legitimate. 

Some of the ways that help you evaluate the legitimacy of the offsetting project include:


One of the main complaints against the carbon market is that offsetting projects are not additional, that is they do not eliminate any more CO2 from the atmosphere than would be the case if the projects were not in place.

Additionality distinguishes offsetting projects from mere environmental projects. There are two critical elements to additionality. Financial additionality evaluates whether the project would exist without carbon credit revenue. That is, the offsetters’ purchase is instrumental in making the offset happen. Policy level additionality ensures that the project goes beyond the efforts of national and international climate policies. That is, it is not simply meeting criteria but going above and beyond to remove additional CO2. For instance, protecting forests that are already covered by a national policy does not count as an offset.

Double counting

Double counting is when two entities claim credit for the same carbon removal or avoidance. This typically happens when the two parties involved include an organization buying carbon credits and the project’s own country trying to meet its national goals under the Paris Agreement. 

Other ways to ensure legitimacy is to ensure that the credit selling company is legitimate and takes measures within its own company to reduce CO2 emissions. A third party company should physically verify that the carbon credits company exists and there is potential to reduce GHG. This enforceability means that the company can be penalized if they do not go through with the promise of GHG reduction. The third party also establishes norms and rules to ensure the GHG reduction changes are permanent.

It is important to ensure that the carbon credit meets these guidelines, and is verified by a third party to establish legitimacy.

Criteria for a high quality carbon credit

Ultimately, the goal for organizations and individuals looking for a carbon credit should be to make a difference, rather than a box-ticking exercise. A high-quality carbon footprint credit means that the initiatives that led to the issuance of the credit made an equal or more positive impact than if you would set out to reduce the GHG emissions yourself.  Secondly, the credit must not be the driver of activities that lead to social or environmental harms. 

A good quality or high quality carbon credit must lead to GHG reductions that are:

  • Additional
  • Permanent
  • Accurate (not overestimated)
  • Not claimed by other entities
  • Not resulting in social or environmental harms 

Some of the best carbon offsetting projects work on the underlying causes of emissions and contribute towards the UN’s Sustainable Development Goals. 

Last but not least

Third party companies provide carbon credit certification by applying a set of parameters to the program to ensure that it meets the standards.  A certified project or program can be retired by the organization to offset its emissions. In addition, carbon verification is a critical component of verifying that GHG-reducing activities taken by an entity are in fact compliant to the standards set for the issuance of an offset. Registration on a carbon credit registry is essential to ensure that any such credit is not double counted. 

Whether you are an organization or an individual looking to offset your CO2 emissions, you can rest assured that carbon credits really work.  However, you need to purchase credits and offsets that are certified, verified, and adhere to the global best practice for carbon markets.