A carbon credit is a transferable or tradable instrument that represents one metric tonne of CO2eq emission reduction or removal and is issued and verified according to recognised quality standards.
Carbon credits are generated by projects that reduce, avoid, or remove greenhouse gas emissions, such as renewable energy installations, reforestation projects, or methane capture at landfills. To be credible, credits must be certified by recognized standards such as the Verified Carbon Standard (VCS), Gold Standard, or the EU's own certification framework under development. Under ESRS E1, companies that use carbon credits to offset emissions must disclose this separately and cannot count credits toward their gross emission reduction targets.
The market for carbon credits is evolving rapidly, with increasing scrutiny on the quality and additionality of offsets. Companies should prioritize direct emission reductions and treat carbon credits as a complement for residual emissions that cannot be eliminated through operational changes.
Explore how to measure and reduce your Scope 1, 2, and 3 emissions before investing in offsets, and read our guide on ESRS climate reporting requirements to understand how carbon credit usage must be disclosed.
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