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Carbon Credit
Practical Law Glossary Item w-032-4444 (Approx. 2 pages)
Glossary
Carbon Credit
A tradable permit or certificate that gives the holder of the credit the right to emit into the atmosphere one metric ton of carbon dioxide (CO2) or an equivalent amount of another greenhouse gas. The credits are generated by companies that:
- Produce fewer emissions than permitted under cap-and-trade programs. These programs allow companies that have exceeded their cap to buy carbon credits from companies that have not exceeded their caps to meet their carbon reduction targets.
- Develop carbon reduction projects, for example, renewable energy projects or reforestation or afforestation (the process of planting new forests in an area where there was no previous tree cover projects. As a forest grows, it naturally removes CO2 from the atmosphere and stores it in its trees).
For more information on carbon credits and how they are used, see Practice Notes, Lower-Carbon, Carbon-Neutral, and "Green" LNG and Green Marketing in the US.