Carbon credits and the voluntary market: how they work

A carbon credit is a certificate representing the reduction, avoidance or removal of one tonne of carbon dioxide equivalent (tCO2e) from the atmosphere. Companies buy them to offset emissions they have not managed to eliminate. The idea is simple, but using them correctly is delicate: a low-quality credit can turn a good intention into greenwashing.

This guide explains what carbon credits are, how the voluntary and compliance markets differ, what types exist, how to assess their integrity with today's standards and how to build them into a serious climate strategy without greenwashing.

What a carbon credit is

Each credit equals one tonne of CO2e whose emission has been avoided or which has been removed from the atmosphere thanks to a project: reforestation, renewable energy, methane capture, efficient cookstoves, among others. The company buying the credit can use it for emissions offsetting, always after having measured and reduced its own footprint. It is important to understand that a credit does not eliminate the emissions a company keeps generating: it represents climate action funded elsewhere, which only makes sense as a complement to your own reductions and never as an excuse not to reduce.

Voluntary market and compliance market

There are two broad types of carbon market, with different logics:

The emissions trading system (ETS) is a compliance market: in the EU, covered installations must surrender one allowance per tonne emitted. The voluntary market, by contrast, does not cover legal obligations: it lets companies support climate projects by their own choice.

Types of credits: avoidance versus removal

Not all credits do the same thing, and the distinction is key to their quality:

• Avoidance (or reduction) credits. They fund projects that prevent gases from being emitted that would otherwise have been released: for example, replacing coal with renewables or capturing methane from a landfill. They do not remove existing CO2.
• Removal credits. They take CO2 out of the atmosphere and store it, whether through natural solutions (reforestation, soil restoration, carbon sinks) or technological ones (direct air capture). They are scarcer and usually more expensive.

Target-setting frameworks increasingly prioritise reducing your own emissions and reserving removals for hard-to-abate emissions, especially as you approach net zero.

Standards and integrity

A credit's credibility depends on it being additional (the project would not have happened without the credit's funding), permanent, free of double counting and third-party verified. Several bodies have worked to raise the quality of the market:

• ICVCM and the Core Carbon Principles (CCPs). The Integrity Council for the Voluntary Carbon Market has defined ten core principles that set a high-integrity threshold. The programmes covering the large majority of market volume (such as Verra and Gold Standard) have been recognised as eligible to have their methodologies assessed against these principles.
• VCMI. The Voluntary Carbon Markets Integrity Initiative focuses on the demand side: its Claims Code of Practice guides how companies can communicate their use of credits without overstating.
• Verified Carbon Standard (VCS). Run by Verra, it is one of the most widely used certification standards in the world.
• Gold Standard. A standard known for its rigour and for tying projects to additional social benefits.

How to read a project's quality

Beyond the label, it is worth reviewing the specific project behind the credit. Four attributes separate a solid credit from a questionable one:

• Additionality. The project would not have happened without the credit revenue; if the reduction would have occurred anyway, the credit does not represent a real climate benefit.
• Permanence. The carbon removed must stay out of the atmosphere over the long term; projects with sound safeguards against fire, pests or land-use change offer more assurance.
• Conservative quantification. Reductions must be calculated with prudent methods and not overstated against a realistic baseline.
• Verification and transparency. An independent third party must check the results, and project information must be public and traceable in a registry.

Greenwashing risks

The voluntary market has faced well-founded criticism: journalistic and scientific investigations have questioned the quality of many credits, especially forest avoidance ones, for overstating reductions. The main risks are:

• Offsetting without reducing. Using credits as a substitute for your own decarbonisation rather than a complement.
• Misleading claims. Declaring yourself "carbon neutral" relying only on offsets of dubious quality. The Empowering Consumers Directive (EU) 2024/825, applicable from 27 September 2026, bans generic climate-neutrality claims based on offsetting.
• Lack of permanence. A forest funded by credits can burn or be logged, releasing the CO2 supposedly stored.

How to use carbon credits within a serious strategy

Credits make sense as the final piece of a strategy, not as a shortcut. Responsible use follows this order:

1. Measure your full carbon footprint, including the relevant scopes.
2. Reduce emissions as a priority, with science-based targets. Our guide on decarbonisation targets under the Paris Agreement explains how to set them.
3. Offset only residual emissions, with high-integrity credits and prioritising removals as you move towards net zero.
4. Communicate transparently: what has been reduced, what has been offset and with which credits.

Frequently asked questions

Does buying carbon credits make me carbon neutral?

Not on its own. Offsetting is only credible after you measure and reduce your emissions. Moreover, from 27 September 2026 EU rules restrict generic neutrality claims based solely on offsetting.

What is the difference between an emission allowance and a carbon credit?

An emission allowance is a permit from the compliance market (such as the EU ETS) authorising one tonne of emissions. A carbon credit comes from a voluntary-market project that reduces or removes one tonne.

Are removal credits better than avoidance credits?

They are not interchangeable. Removals take out CO2 that has already been emitted and are especially valuable for residual emissions; avoidance credits prevent future emissions. In both cases, the key is the project's integrity.

How do I know if a credit is high quality?

Check that it is certified by a recognised standard (such as VCS or Gold Standard), that it meets the ICVCM Core Carbon Principles and that the project demonstrates additionality, permanence and independent verification.

Measure and reduce before offsetting with Manglai

Carbon credits only work if they start from a well-measured footprint and a real reduction. Manglai calculates your carbon footprint with up-to-date emission factors and helps you build a solid reduction plan, so that offsetting is the last step of a credible strategy and not a substitute for action.