Carbon credits

A carbon credit is a tradable certificate representing the reduction, avoidance or removal of one tonne of carbon dioxide equivalent (tCO2e) from the atmosphere. Buying a credit lets a company, government or individual finance climate action elsewhere and count it towards a climate target, typically carbon neutrality.

Credits are generated by projects that either cut emissions (renewable energy, energy efficiency, avoided deforestation) or remove carbon already emitted (afforestation, soil carbon, direct air capture). It is important not to confuse a carbon credit with an EU ETS allowance: an allowance is a permit to emit issued under a regulated cap, whereas a credit certifies an emission reduction or removal achieved by a project.

Compliance vs voluntary markets

• Compliance markets: created by law, such as the EU ETS. Participants must surrender units to cover regulated emissions. Most trading here is in allowances, though limited use of project credits has historically been allowed in some systems.
• Voluntary carbon market (VCM): companies and individuals buy credits to offset emissions outside any legal obligation, usually to back net-zero or neutrality claims. Credits are certified by independent standards such as Verra's Verified Carbon Standard (VCS) and Gold Standard.

From the CDM to Article 6.4

The idea of crediting originated with the Kyoto Protocol (1997), which created the Clean Development Mechanism (CDM) and Joint Implementation. Under the Paris Agreement, this baton has passed to Article 6:

• Article 6.2 allows countries to trade emission reductions bilaterally (ITMOs).
• Article 6.4 establishes the Paris Agreement Crediting Mechanism (PACM), a UN-supervised global mechanism that replaces the CDM. Its rules were finalised at COP29 (Baku, 2024), with the first methodologies and the transition of eligible CDM projects underway from late 2025.

The integrity question

The voluntary market has faced strong criticism over credits that did not deliver the claimed reductions, particularly some avoided-deforestation projects. In response, the Integrity Council for the Voluntary Carbon Market (ICVCM) publishes the Core Carbon Principles (CCPs), a quality benchmark covering additionality, permanence, robust quantification and no double counting. By late 2025 the ICVCM had approved a set of carbon-crediting programmes and methodologies as CCP-eligible, and CCP-labelled credits tend to command a price premium. Key quality tests for any credit are:

• Additionality: the reduction would not have happened without the credit revenue.
• Permanence: the carbon stays out of the atmosphere (a particular concern for forests).
• No double counting: the same tonne is not claimed twice, addressed through corresponding adjustments under Article 6.
• Verification: independent third-party validation.

The mitigation hierarchy

Best practice, reflected in standards such as the SBTi Corporate Net-Zero Standard, is that credits should only offset residual emissions after a company has reduced its own footprint as far as possible. Offsetting is a complement to decarbonisation, not a substitute for it. Loose use of credits to support unqualified neutrality claims is increasingly restricted, including by the EU's Empowering Consumers Directive on green claims.

At Manglai we help companies measure their carbon footprint, build a reduction plan and use high-quality credits responsibly for what remains. Discover how Manglai can help you.