Carbon Credits Explained: From Project to Retirement
A carbon credit represents one metric tonne of CO₂ equivalent that has been reduced, avoided or removed. Here is how the full lifecycle works.
What a carbon credit is
A carbon credit is a unit that represents one metric tonne of carbon dioxide equivalent (tCO₂e) that has been reduced, avoided or removed from the atmosphere. Credits are issued by a registry after an independent body has checked the claim.
Each credit has a serial number and is recorded in a registry. Once a credit is retired, it is cancelled in the registry so it cannot be sold or claimed again.
The lifecycle, step by step
1. Project design. A project developer describes the activity, the baseline it is measured against and the methodology it will follow, usually in a project design document.
2. Validation. An independent auditor checks the design before the project starts, including whether the reductions would happen anyway.
3. Monitoring. The project measures emissions reductions or removals over time, following the monitoring plan in its methodology.
4. Verification. A second independent auditor checks the monitoring data and the reductions claimed for each period.
5. Issuance. The registry issues credits for the verified reductions.
6. Retirement. A buyer retires the credit to claim the reduction. Retirement is the step that makes the claim final.
What makes a credit credible
Four questions matter most. Additionality: would the reduction have happened without the credit? Permanence: how long will the carbon stay stored? Measurement: how reliable is the monitoring data? Leakage: did the project shift emissions somewhere else?
Before buying or citing a credit, check the registry it was issued under, the methodology used, the vintage (the year of the reduction) and whether it has been retired.