The United Nations Climate Change Conference, known as COP26, in Glasgow, Scotland catalyzed a commitment to carbon neutrality, achieving net-zero carbon emissions, requiring reducing emissions as much as possible, and balancing the remaining emissions with the purchase of carbon credits.

A carbon credit reduces, avoids or removes carbon emissions in one place to compensate for unavoidable emissions somewhere else through certified green-energy projects. Carbon credits represent one ton in carbon emission reduction. They are 1) Avoidance or reduction projects — e.g., renewable energy (wind, solar, hydro, biogas) — and 2) Removal or sequestration — e.g., reforestation and direct carbon capture, which are aimed at the voluntary carbon market (VCM). Carbon credits can be resold multiple times until it has been retired by the end-user who wants to claim the offset’s impact. Carbon credits can also have co-benefits, such as job creation, water conservation, flood prevention and preservation of biodiversity.

Carbon registries store the carbon credits issued by third-party independent and internationally certified auditors or verifiers, in accordance with independent standards. Serial-numbered credits are issued by the verifiers, and the offset reduction claim gets converted to carbon credits that can be traded or retired. Carbon markets turn CO2 emissions into a commodity or tradable environmental asset by giving it a price.

Related: UN’s COP26 climate change goals include emerging tech and carbon taxes

In the compliance market, carbon allowances are traded. There are…

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