What are carbon credits and how do they work?

The minute

• One credit equals one tonne of CO2e that was avoided, reduced or removed from the atmosphere
• It only exists after independent verification and issuance in a registry such as Verra, Gold Standard, ACR or the Climate Action Reserve
• When someone uses it to offset, the credit is retired and leaves circulation for good

Why it matters: Understanding the lifecycle is what separates a defensible offset from a purchase that collapses under the first question.

Definition: a carbon credit is a tradable certificate, issued by a registry after independent verification, that represents one tonne of carbon dioxide equivalent (CO2e) reduced, avoided or removed by a specific project. Verra, which runs the Verified Carbon Standard, describes its unit, the Verified Carbon Unit (VCU), as representing “one metric tonne of carbon dioxide reduced or removed from the atmosphere”.

How a carbon credit is created, issued and retired

A project (protected forest, biogas, fuel switching, direct air capture) measures how much it avoided or removed against a baseline, the scenario without the project. An independent auditor checks the calculation and the registry issues the credits.

The step-by-step process in practice

1. Methodology choice. The developer picks, within a programme (Verra, Gold Standard or another), the methodology that fits the activity. The methodology defines how to set the baseline and how to measure the reduction or removal.
2. Project Design Document (PDD). A technical document describes the activity, the baseline scenario, the crediting period and the expected reductions. Under the Verra VCS Program, projects go through a 30-day public comment period before registration.
3. Validation. A Validation and Verification Body (VVB), which Verra defines as an independent third-party auditor it has approved, audits the PDD and the site. If validation succeeds, the project can request registration.
4. Monitoring and verification. Once the project operates, the developer collects field data for a monitoring period and submits a monitoring report. A VVB then verifies that the reductions actually occurred. Verra notes that a VVB may not verify more than six consecutive years of a project’s emission reductions.
5. Issuance. Only after verification does the registry issue the credits, each linked to the project, the vintage (the year the reduction occurred) and a serial number.
6. Transfer and retirement. Credits can be sold and transferred between registry accounts. When they are used to offset emissions, they are retired, which Verra describes as taking them “out of circulation so they can only be used for such a purpose once”.

From concept to first issuance, the cycle usually takes more than a year.

Which registries issue carbon credits

Each programme names its unit differently, but the issue, transfer and retire logic is the same.

Unit names follow ICAO’s CORSIA Eligible Emissions Units document (April 2026). Puro.earth defines a CORC as a verified credit confirming that 1 metric ton of CO2 has been durably removed.

Avoidance vs removal: what the tonne actually represents

An avoidance or reduction credit represents emissions that did not happen compared with the baseline (a landfill that captures methane, a forest that was not cleared, a cookstove that burns less wood). A removal credit represents CO2 physically taken out of the atmosphere and stored (trees growing on degraded land, biochar, mineralisation, direct air capture with geological storage).

Blue carbon projects in mangroves and wetlands can generate both types. For current price ranges by project type, see what buyers actually pay in 2026.

Voluntary market vs compliance market

In the voluntary market, a company buys by choice. In a compliance market, a law sets an obligation, and covered entities surrender allowances or eligible credits.

CORSIA

Under ICAO’s scheme for international aviation, aeroplane operators meet their offsetting requirements by cancelling CORSIA Eligible Emissions Units. For the first phase (2024 to 2026 compliance period), ICAO’s eligibility document limits units to reductions that occurred from 1 January 2021 through 31 December 2026 and, for programmes such as Verra, ACR and CAR, excludes units that have not been authorised by the host country through an attestation to the avoidance of double-claiming.

Paris Agreement Article 6

Article 6.2 of the Paris Agreement requires countries that transfer mitigation outcomes to “apply robust accounting to ensure, inter alia, the avoidance of double counting”. The Article 6.2 guidance adopted in Glasgow covers mitigation outcomes authorised for NDCs and for “other international mitigation purposes” (such as CORSIA), and requires each participating Party to apply corresponding adjustments. Article 6.4 created a UN-supervised mechanism, now known as the Paris Agreement Crediting Mechanism; its rules apply a levy of 5 per cent of A6.4ERs at issuance for adaptation and cancel a minimum of 2 per cent of issued A6.4ERs to deliver overall mitigation in global emissions. More detail in our Article 6 explainer.

Brazil and the SBCE

Law 15,042 of 11 December 2024 established the Sistema Brasileiro de Comércio de Emissões (SBCE). It creates two assets: the CBE (Cota Brasileira de Emissões, the allowance) and the CRVE (Certificado de Redução ou Remoção Verificada de Emissões), defined as a fungible, tradable asset representing 1 tCO2e of verified reduction or removal, following an accredited methodology and registered in the SBCE. Operators emitting above 10,000 tCO2e per year must submit a monitoring plan and report emissions; above 25,000 tCO2e per year they must also submit periodic reconciliation of obligations (Art. 30). Primary agricultural production is not a regulated activity (Art. 1, § 2).

A voluntary credit only becomes a CRVE if it follows a methodology accredited by the SBCE managing body, is verified by an independent entity and is registered in the SBCE Central Registry (Art. 44). The maximum share of CRVEs accepted in reconciliation will be set in the National Allocation Plan. The law sets five phases (Art. 50): up to 12 months, extendable by 12, to regulate; one year to set up reporting; two years of reporting only; the first allocation plan; and full operation. Regulation is being issued in stages; for example, Decree 12,768 of 5 December 2025 set up the SBCE Permanent Technical Consultative Committee. The market’s structure and timeline are covered in our SBCE explainer.

Quality criteria: what makes a credit high-integrity

The ICVCM published ten Core Carbon Principles (CCPs), grouped into governance, emissions impact and sustainable development. Programmes approved as CCP-Eligible can apply the CCP label only to credit categories (methodologies) the Council has also approved.

Additionality, in the ICVCM wording, means the reductions would not occur without the incentive of carbon credit revenue. This test drives many ICVCM decisions: in August 2024 the Council concluded that eight renewable energy methodologies were “insufficiently rigorous in assessing whether the projects would have gone ahead without the incentive of carbon credit revenues”, a decision covering about 236 million unretired credits. Our additionality guide explains the test in detail.

Permanence matters most for forests and soils. A forest can burn or be cleared. Verra handles this with a pooled buffer account: under its AFOLU Non-Permanence Risk Tool (v4.2, October 2023), each project receives a risk rating that sets how many credits it must deposit in the buffer, with a minimum rating of 12, and a project whose overall rating exceeds 60 fails the risk analysis.

Leakage is defined in Brazil’s Law 15,042 as an increase in emissions in one place as a consequence of reductions achieved in another. Methodologies must deduct it.

Corresponding adjustments are the Article 6 accounting entry by which a host country removes a transferred tonne from its own inventory. Without one, the credit supports a different claim (a contribution to the host country’s effort).

ICVCM decisions also affect forest credits: in November 2024 it approved three REDD+ methodologies (ART TREES v2.0, Verra VM0048 and Verra’s JNR Framework v4.1), while credits under older Verra REDD+ methodologies (VM0006, VM0007, VM0009, VM0015 and VM0037) will not be able to receive the CCP label. As of 11 May 2026, ICVCM listed ACR, ART TREES, CAR, Equitable Earth, Gold Standard, GCC, Isometric, Puro.Earth, Rainbow and Verra as CCP-Eligible programmes and estimated that 107 million credits had been approved to use the CCP label.

Worked example: from verified tonnes to a retired offset

Illustrative only. The figures below are hypothetical and chosen to show the arithmetic, not market data.

A reforestation project under the VCS completes a monitoring period in which the VVB verifies 100,000 tCO2e of net removals, already net of leakage. Its non-permanence risk analysis gives an overall rating of 15 (above the minimum of 12).

If the same tonnes had been issued as A6.4ERs under the Paris Agreement Crediting Mechanism, the rules would work differently: out of 100,000 units issued, 5,000 (5 per cent) go to the share of proceeds for adaptation and at least 2,000 (2 per cent) are cancelled for overall mitigation, leaving at most 93,000 for the project participants.

Who buys carbon credits and why

Companies offsetting residual emissions, event organisers, airlines under CORSIA and, once the SBCE is operational, Brazilian operators under the cap. On the supply side, our guide on selling carbon credits from your land covers what that takes.

What carbon credits cost

There is no single price. Price follows project type (avoidance or removal, nature-based or engineered), quality signals such as ratings and the CCP label, eligibility for CORSIA, and vintage. Updated ranges and their sources are in the 2026 price guide linked above.

Vintage also matters: some buyers’ internal policies favour recent vintages, so older ones may trade at a discount without the reduction being less real.

Common mistakes buyers make

• Not checking retirement in the public registry. A credit that sits in a broker’s account and is never retired in the buyer’s name can be resold, and the same tonne can be claimed twice. Confirm the registry, serial numbers and a written commitment to retire in your name.
• Ignoring additionality. If the activity was already profitable without carbon revenue, the credits do not represent an additional climate benefit.
• Making claims the credit cannot support. Offsetting is not the same as reducing.

The checks a buyer should run before paying are laid out step by step in our due diligence guide.

What is still unresolved

• Corresponding adjustments in practice. The Article 6 rules are agreed, but each host country decides what it will authorise. Under Brazil’s Law 15,042, international transfers require prior, formal authorisation specifying volumes and conditions (Art. 51), and the creation or registration of a credit gives no right to that authorisation.
• SBCE regulation. The cap, the covered sectors in detail, the National Allocation Plan and the maximum share of CRVEs are still to be defined by regulation.
• Buffer adequacy. Registries require buffer pools, but there is no consensus on whether current percentages are large enough.

Frequently asked questions

Sources

• Verra, Verified Carbon Standard programme page
• Verra, AFOLU Non-Permanence Risk Tool v4.2 (12 October 2023)
• ICVCM, Core Carbon Principles
• ICVCM, renewable energy decision (6 August 2024)
• ICVCM, REDD+ decision (15 November 2024)
• ICVCM, assessment decisions (11 May 2026)
• Gold Standard Impact Registry
• Puro.earth, CO2 Removal Certificate
• ICAO, CORSIA Emissions Units and CORSIA Eligible Emissions Units (April 2026)
• UNFCCC, Paris Agreement text
• UNFCCC, Article 6.2 guidance (CMA.3)
• UNFCCC, Article 6.4 rules, modalities and procedures (CMA.3)
• Brazil, Law 15,042/2024
• Brazil, Decree 12,768/2025