Carbon credits are a tradable permit scheme. They provide a way to reduce greenhouse gas emissions by giving them a monetary value. A credit gives the owner the right to emit one tonne of carbon dioxide. Carbon credits are generated as the result of an additional carbon project. A credit can be an emissions allowance which is allocated or auctioned by the administrators of a cap-and-trade program or an offset of Greenhouse Gas equivalent carbon dioxide emissions. An allowance, such as an European Union Allowance (EUA) generally has more value than an offset such as a Certified Emissions Reduction (CER). This is due to the lack of a developed secondary market for CERs, as well as due to the principle of supplementarity. An offset generated by a carbon project under Clean Development Mechanism (CDM) or Joint Implementation (JI) is limited in value by the fact that regulated entities in the EU ETS are limited as to what percentage of compliance can be accomplished via these flexible mechanisms.
International treaties such as the Kyoto Protocol set quotas on the amount of greenhouse gases countries can produce. Countries, in turn, set quotas on the emissions of businesses. Businesses that are over their quotas must buy carbon credits for their excess emissions, while businesses that are below their quotas can sell their remaining credits. By allowing credits to be bought and sold, a business for which reducing its emissions would be expensive or prohibitive can pay another business to make the reduction for it. This minimizes the quota’s impact on the business, while still reaching the quota.
Credits can be exchanged between businesses or bought and sold in international markets at the prevailing market price.
There are many companies that sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint. These offset marketers purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects. The quality of the credits are based in part on the sophistication of the fund or development company that acted as the carbon project sponsor.
basically its a fuckin joke is what it is.