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Carbon credits and carbon offsetting explained

“Our world needs climate action on all front: everything, everywhere, all at once”

UN Secretary General, Antonio Guterre

Experts agree that to combat climate change reducing emissions is vital, but according to the UN’s Intergovernmental Panel on Climate Change (IPCC), there’s no pathway to keeping global warming to 1.5°C by reducing emissions alone. The IPCC says we must also remove carbon from the atmosphere. The good news is that high-quality carbon projects can efficiently and verifiably do this, and the UN has endorsed the role of carbon markets as an essential part of achieving the world’s climate targets.

Companies can fund climate action while on their emissions reduction journey by using carbon credits to support verified projects that measurably cut global emissions while facilitating community development, protecting vulnerable ecosystems or installing efficient technology. Investing in carbon credits is often a necessary step for achieving business climate goals and commitments as not all emissions can be easily avoided or further reduced and the deep transformation and/or technology required to reduce absolute emissions takes time and this is something we do not have. 

We know carbon offsetting may seem hard to understand. To help with this, below we’ve compiled the answers to some of our most frequently asked questions. 

What is a carbon credit?

Carbon credits are recognised tools for investing in projects that contribute to reducing the amount of greenhouse gases in the atmosphere. This is done by either removing or avoiding emissions that would otherwise have occurred.

Each carbon credit represents the avoidance or removal of one metric tonne of greenhouse gas emissions from the earth’s atmosphere. Carbon credits were formalised by the United Nations (UN) Kyoto Protocol. This UN body also developed the key principles and rules guiding verified credits today.

Today, there are a multitude of different carbon credit standards, which each require carbon projects to undergo independent verifications to ensure the project’s activities are permanent and additional amongst other critical environmental and social considerations. 

Not all carbon credits are created equal. Some are much higher quality than others.

What is carbon offsetting?

‘Carbon offsetting’ is the act of purchasing carbon credits to invest in environmental projects around the world as part of a company’s broader decarbonisation journey, to help reduce their often unavoidable, immediate carbon emissions.

Other benefits of carbon projects

In addition to reducing or removing greenhouse gas emissions from being released into the atmosphere, carbon projects have other benefits, such as:

Social, health and cultural benefits
Employment for local people, improved health and education, and access to clean and affordable energy. 
Environmental benefits
Protecting biodiversity, maintaining habitat for native animal and plant species, improved local air and water quality, avoiding vegetation clearance, re-establishing vegetation on previously cleared areas, and improved environmental management.
Economic benefits
Employment and community empowerment, improved infrastructure and increased economic activity.

Types of projects

The types of projects carbon credit units are generated by include:

Types of carbon credits

Australian Carbon Credit Units (ACCUs)

Australian carbon credits, known as Australian Carbon Credit Units (ACCUs), are issued by the Australian Federal Government’s Clean Energy Regulator for eligible activities under the Carbon Farming Initiative regulations. Projects that earn ACCUs for storing CO2 or avoiding emissions are regulated by the Federal Government. The Federal Government recognises ACCUs from those projects as eligible credits under its voluntary Climate Active program, as well as the Safeguard Mechanism.

International Certified Emissions Reductions (CERs)

Certified Emissions Reductions (CERs) are offsets that are created from projects registered under the Clean Development Mechanism (CDM). The CDM is one of the mechanisms developed countries can use to meet their national emissions reduction targets under the Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC). CERs result from mitigation projects taking place in developing countries. 

International Verified Carbon Units (VCUs)

The largest independent voluntary carbon standard is the Verified Carbon Standard (VCS), which is regulated by Verra. Projects registered under the VCS create Verified Carbon Units (VCUs) in return for reducing or avoiding emissions as part of the project activities. VCUs are often also labeled with certifications from other programs that represent community and biodiversity benefits, in addition to climate benefits represented by the VCU. These certifications include the Climate, Community and Biodiversity (CCB) Standard and SDVista. 

International Verified Emissions Reductions (VERs)

Verified Emissions Reductions (VERs) are a product of projects registered under and regulated by the independent voluntary carbon offset standard – Gold Standard. In addition to reducing or avoiding emissions, these projects also must align with at least 3 Sustainable Development Goals (SDGs) and monitor and report on their contribution to the goals.  

There are several ways to ensure that carbon projects and carbon credits are high quality and reach the environmental and social impacts the project set out to achieve. The usual criteria for assessing carbon credit quality are:

How the project was assessed for a background level of emissions, against which avoidance or removal can be measured.
The project activity is “additional,” meaning that the emissions avoidance or removal would not have happened without the carbon project.
The project does not cause excess emissions elsewhere. This means that the project does not lead to an increase in emissions in another part of the world.
The emissions avoidance or removal is permanent. This means that the emissions prevention or removal should be sustained over time

Other important elements include:

High-quality carbon projects can also have other benefits beyond carbon emissions reduction, such as contributing towards UN Sustainable Development Goals. This means that the project should have positive impacts on other areas, such as social or environmental factors.

Independent verification

Carbon projects should be independently verified by a third-party organisation to ensure that they are accurately measuring and reducing or removing carbon dioxide from the atmosphere. 

Accreditation from internationally recognised standards

Carbon projects must adhere to recognised standards, such as those set by the Verified Carbon Standard (VCS) or Gold Standard.


Still have questions? To read more FAQs, see our FAQ page.