Carbon credits are not mystical green tokens. They’re tradeable instruments that represent one metric tonne of CO₂ (or equivalent) avoided or removed, issued under a recognised standard or program.
You can slice the universe of credits in a few useful ways.
1. Compliance vs voluntary
- Compliance credits are used inside regulated systems like the EU ETS or California cap‑and‑trade. Credits have strict eligibility rules, registries, and legal consequences if you screw it up.
- Voluntary credits are used by companies and individuals making voluntary climate commitments outside regulation. These dominate the “voluntary carbon market” that everyone argues about online.
Same tonne, different legal context.
2. Avoidance/reduction vs removal
- Avoidance/reduction credits generated by projects that prevent future emissions: renewables replacing coal, deforestation avoidance, methane capture, energy‑efficiency upgrades. They don’t suck CO₂ out of the air; they stop extra from going in.
- Removal credits generated by projects that remove CO₂ from the atmosphere and store it somewhere: reforestation, soil carbon, biochar, direct air capture with storage.
Everyone suddenly loves removals, but they’re usually more expensive and technically messy.
3. Nature‑based vs tech‑based
- Nature‑based: forests, mangroves, peatlands, regenerative agriculture. Cheap per tonne, but vulnerable to fires, pests, politics and creative accounting.
- Tech‑based: direct air capture, mineralisation, some forms of CCS. More durable and measurable, but capital‑intensive and early‑stage.
4. Program/label
Credits also come with different “labels” depending on the standard: CERs (CDM), VERs (Verra), Gold Standard units, Article 6.4 credits, etc. Quality is not guaranteed just because there’s a logo involved.
If you’re buying, your taxonomy should be: what program, what project type, what mechanism (avoidance vs removal), what storage risk, and what verification. Anything less is charity with paperwork.