A carbon credit or offset credit is a transferable financial instrument, similar to a derivative of an underlying commodity. These credits are officially certified by governments or independent certification bodies and serve as a representation of an emission reduction that can be traded in the market. Both offsets and credits are quantified in terms of tonnes of carbon dioxide-equivalent (CO2e). In simpler terms, each carbon offset or credit signifies the reduction or elimination of one ton of carbon dioxide or an equivalent amount of other greenhouse gases.
A carbon offset is a measure taken to reduce or eliminate the emissions of carbon dioxide and other greenhouse gases in order to counterbalance emissions generated elsewhere. A carbon credit or offset credit is a certified, transferable unit recognized by governments or independent certification bodies, representing a reduction of one metric ton of CO2 or an equivalent amount of other greenhouse gases (GHGs). These mechanisms, alongside carbon taxes and subsidies, fall under the category of carbon pricing.
The terminology in this field is continuously evolving. During COP27, negotiators reached an agreement to define offsets and credits issued under Article 6 of the Paris Agreement as "mitigation contributions" to discourage claims of carbon neutrality by buyers. Certification organizations like the Gold Standard even provide detailed guidance on appropriate descriptive terms for offset and credit buyers.