Carbon Credits Glossary

Carbon offsets that would not have occurred if the offset project had not been implemented. (This is one of four factors to consider when acquiring carbon offsets.)

Planting of new woods on places that had previously been devoid of trees.

Caused by humans. The current scientific consensus states that global warming is a direct result of the sharp rise in anthropogenic emissions of greenhouse gases.

A biomass-derived fuel, usually in liquid form. Bioethanol from sugarcane or maize, biodiesel from canola, soybeans etc.

Organic material from living or recently dead plants or animals.

Blue carbon is the carbon absorbed and deposited in biomass and sediments by living organisms in coastal (e.g., mangroves, salt marshes, seagrasses) and marine environments.

The California Cap and Trade Program is administered by the Western Climate Initiative (WCI) and controlled by the California Air Resources Board. This program began in 2012 with California and subsequently was linked to similar emissions programs from the Canadian provinces of Quebec, and briefly, Ontario as well. Both jurisdictions' allowances can be used for compliance. The cap and trade scheme includes major electric power plants, large industrial plants, and gasoline distributors, among other sectors. Visit the California Air Resources Board's summary of their cap-and-trade program here.

A regulatory procedure that puts a "cap" on the amount of greenhouse gas emissions that companies are permitted to emit. Firms that come in under their limitations have the option to "trade" (sell) their excess emission permits to other companies that have exceeded their limit.

Permissions (credits) to release greenhouse gases for participants in a controlled carbon market.

Middlemen who do not hold offsets but enable transactions between project developers and end-users, merchants, and/or retailers.

The maximum amount of CO2 that the world can release while still having a good probability of keeping warming below the 2°C goal laid out in the Paris Agreement.

An online tool that calculates your carbon footprint based on your home energy use, driving and flying habits, food, trash, recycling, and other factors.

A process that separates (captures) a reasonably pure stream of carbon dioxide (CO2) from industrial and energy-related sources, conditions it, compresses it, and transports it to a storage site for long-term isolation from the atmosphere (sequestration). Carbon capture and storage is another term for it.

A method of capturing CO2 and then using it to create a new product. Carbon capture, utilization, and storage occurs when CO2 is stored in a product for a climate-relevant time horizon. Only when coupled with CO2 that has recently been removed from the atmosphere does CCUS lead to carbon dioxide removal.

Equal to the offsetting of one tonne of carbon dioxide or carbon dioxide equivalent. A monetary value is ascribed to the reduction or offset of greenhouse gas emissions; this is a general term for any tradable certificate or permit reflecting emissions reductions.

For as far back as geological evidence shows – at least 650,000 years – the Earth's natural carbon cycle has maintained a steady equilibrium of carbon dioxide in the atmosphere - around 275 parts per million (ppm). We discovered this by examining the contents of Antarctic ice cores. As a result of the natural carbon cycle: People and animals (source) use respiration to turn oxygen into carbon dioxide. Plants (sinks) absorb CO2 and release it back into the atmosphere. Over the seas, oceans both produce (source) and absorb (sink) carbon dioxide. Dead organic matter traps carbon underground in various forms such as fossil fuels (sink), while volcanic eruptions (source) can release CO2 from carbonate rocks deep inside the Earth.

A heat-trapping gas composed of one part carbon and two parts oxygen. Too much CO2 in our atmosphere causes the Earth to retain too much of the sun's heat, leading to global warming. And excessive global warming eventually leads to various complications that are detrimental to our planet and its inhabitants, such as rising sea levels or certain areas becoming too hot for humans to live in.

The globally accepted standard measure of greenhouse gas emissions, and it permits other greenhouse gas emissions to be represented in terms of CO2 based on their proportional global warming potential (GWP). The following gases are included under the term CO2e:



Each of the above seven gases was to be mitigated under the Kyoto Protocol, and this objective has been carried forward under the Paris Agreement.

The quantity of carbon dioxide emitted into the atmosphere as a result of any given entity’s actions. Individuals, corporations, and even nations can have a carbon footprint.

A marketplace that treats emissions reductions as a commodity, where participating members can buy and sell carbon credits.

Often known as having a net zero carbon footprint, this is achieved by either reducing carbon emissions to zero, or by balancing a measurable quantity of carbon emitted with an equivalent amount offset.

Also known as VERs (voluntary emission reductions), CRTs (carbon reduction tonnes), and ERTs (emission reduction tons/tonnes), carbon offsets represent a given amount of carbon sequestered, consumed, or otherwise removed from the atmosphere. Through a voluntary carbon market, they provide a chance for anybody to fund initiatives that decrease, avoid, eliminate, or sequester carbon dioxide.

A carbon sink is any natural or man-made reservoir that collects and stores any carbon-containing chemical component for an indefinite length of time, lowering CO2 concentrations in the atmosphere. The most important carbon sink on a global scale is the ocean.

Any source of carbon dioxide or equivalent greenhouse gases. People and animals, as well as seas and volcanic eruptions, are all natural carbon sources. Carbon emissions from human-caused sources include the use of fossil fuels, automobile exhaust, deforestation, and manufacturing, building, and mining activities.

A futures contract for allowances issued by the California Cap and Trade Program. Expired contracts result in physical delivery of CCA allowances to the Compliance Instrument Tracking System Service (CITSS) registry.

A futures contract for California Air Resources Board offset credits that may be used to meet certain compliance responsibilities under the California Cap and Trade Program. As a tangible product, contracts held to expiry result in actual delivery of California carbon offsets beyond the danger of invalidation in the CITSS register.

A process that separates (captures) a reasonably pure stream of carbon dioxide (CO2) from industrial and energy-related sources, conditions it, compresses it, and transports it to a storage site for long-term isolation from the atmosphere. Carbon capture and storage is another term for it.

A method of capturing CO2 and then using it to create a new product. Carbon dioxide collection, use, and storage occurs when CO2 is stored in a product for a climate-relevant time horizon (CCUS). Only when coupled with CO2 that has recently been removed from the atmosphere does CCUS lead to carbon dioxide removal.

As defined by the UN Framework Convention on Climate Change, climate change is: “a change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability observed over comparable time periods”. In other words, in most contexts, climate change refers specifically to anthropogenic climate change, and not the Earth’s natural climate cycles. This includes both global warming as well as extreme weather events.

Compliance carbon markets, also known as mandatory markets, are governed by national, regional, or provincial law and compel emission sources to meet legally mandated GHG emissions reduction targets. Because compliance program offset credits are generated and traded for regulatory compliance they typically act like, and are priced like, other commodities.

The annual Conference of the Parties, also known as the United Nations Climate Change Conference. It's the decision-making body of the United Nations Framework Convention on Climate Change (UNFCCC) and includes over 190 countries.

Click here for details on the upcoming COP26 conference.

A process in which CO2 is extracted directly from the atmosphere. This CO2 can be permanently retained in deep geological formations (resulting in negative emissions), or it can be used in food processing, for example, or mixed with hydrogen to make synthetic fuels.

The reduction or removal of one metric tonne of carbon dioxide equivalent from the atmosphere (CO2).

With about 45% of EU greenhouse gas emissions covered by the EU ETS, it’s the world's largest cap and trade scheme. Emissions from heavy industry, electricity generation, and aircraft in the EU are covered by this programme, which was implemented in 2005.

Unexpected weather events and patterns that are considered extremely unusual outliers in the regions where they occur. Unexpected heat waves, such as the 2021 Western North America heat wave that set new record-high temperatures in Canada, or the February 2021 North American cold wave that caused significant damage in the state of Texas, are examples of such events. There is some evidence to suggest that climate change is causing extreme weather events to occur both more frequently as well as more severely.

Fuels derived from hydrocarbon deposits formed by fossils, such as coal, oil, and natural gas. The combustion of these products, for example in car engines or coal-fired power plants, produces greenhouse gases like carbon dioxide.

An increase in the world’s average surface temperature, as compared to a baseline reference period. The average temperature of world has increased by approximately 1°C since the late 19^th century, and the scientific consensus is that human activity is the primary contributor.

A scientific measure that compares how harmful each greenhouse gas is to the atmosphere, in terms of how long they stay there and how much heat they trap, relative to carbon dioxide. See also: Carbon Dioxide Equivalent.

A non-governmental emission reductions project certification scheme. It participates in the Clean Development Mechanism (CDM), the Voluntary Carbon Market, and many climate and development initiatives.

Gases that trap heat in the atmosphere. Carbon dioxide, methane, nitrous oxide, and fluorinated gases are the primary greenhouse gases. See also: Carbon Dioxide Equivalent.

The use of false or misleading promotion and marketing to exaggerate an organization's environmental or sustainable activities.

Defined in the Kyoto Protocol, an ICE Certified Emission Reduction futures contract is a futures contract for a carbon offset unit that may be used to meet EU ETS compliance obligations.

A futures contract for permits issued by the European Union Emissions Trading System. Contracts held to expiry result in physical delivery of EUA allowances within the Union Registry.

An index based on prices from the EU Emissions Trading Scheme (EU ETS), the California Cap and Trade Program, and the Regional Greenhouse Gas Initiative (RGGI). The secondary futures market for such programs, which trade on ICE's futures exchanges, accounts for the majority of volume in all carbon-based futures contracts. Visit the ICE Carbon Futures Index Family here.

The ICE Regional Greenhouse Gas Initiative futures contract is a contract for RGGI allowances. The RGGI is a collaborative program comprised of 11 northeastern U.S. states, and RGGI allowances are physically handed to the RGGI-COATS registry when contracts are held to expiry.

A global accord signed in 1997 that aimed to decrease greenhouse gas emissions. The phrase "carbon credit" appeared for the first time in the Kyoto Protocol. The Kyoto Protocol would later be superseded by the Paris Agreement.

Changes in how a particular area of land is used or managed. For instance, land use change is one of the primary reasons why the Amazon rainforest has gone from being one of the world’s largest natural carbon sinks to becoming a carbon source instead.

When a reduction in emissions from a carbon offset project in one location produces a rise in emissions in another area. For example, when preserving a forest in one region transfers logging activities to another area of forest.

Mandatory (compliance) markets are governed by national, regional, or provincial law and compel emission sources to meet GHG emission reduction targets. Because compliance program offset credits are generated and traded for regulatory compliance, they typically act like other commodity pricing.

A power measurement unit equal to one million watts. One megawatt is approximately equal to the amount of energy produced by ten car engines.

Equivalent to 1,000 kilowatts of continuous power consumption for one hour. It’s about comparable to the amount of power consumed by 330 households in a single hour.

A condition in which greenhouse gases emitted into the atmosphere are balanced by the amount of greenhouse gases being removed from the atmosphere. See also: Carbon Neutral.

A condition in which greenhouse gases entering the atmosphere are balanced by removal from the atmosphere.

Paper licences provided in exchange for the purchase of carbon credits. Offset certificates should include a serial number unique to the offset, total tonnage bought, the verifier's name and signature, project location, owner's name and address, and a vintage date.

An international treaty on climate change that superseded the Kyoto Protocol. Signed in 2016, the agreement has been ratified by all but six countries in the world. The long-term goal of the Paris Agreement is to keep global warming below 2°C, and the treaty contains various provisions to enforce this target.

A model scenario for climate change based on current scientific understanding. The 1.5°C pathway, as laid out by the Intergovernmental Panel for Climate Change, forecasts a 50-66% chance that global warming will remain at or below 1.5°C by the year 2100 after a brief overshoot. This pathway would require the entire world to cut greenhouse gas emissions by 7.6% each year, halving emissions by 2030 and reaching net zero status by 2050.

Rather than limiting projects to those that wouldn’t be viable without the carbon market, the performance standard counts as offsets any energy reduction that’s less than a specified threshold. In some cases, a project may be good for the environment, but would have happened regardless, independent of assistance from the carbon market. As a result, projects with the performance standard generally aren’t as “high quality” as more rigorously certified carbon reduction projects.

Offsets that are long-lasting or guaranteed to be replaced in the event of a loss. This is one of four factors to consider when acquiring carbon offsets.

Carbon offsets that have already actually reduced carbon emissions, as opposed to those that are expected to do so in the future. This is one of four factors to consider when acquiring carbon offsets.

Projects in areas where forests are in danger due to land-use change, resulting in reduced carbon storage. REDD+ projects aim to save these forests before they’re degraded or deforested, avoiding a worse-case scenario that leads to increased emissions.

A multi-state cap and trade scheme first established in 2009. This program encompasses the 11 U.S. states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia. Each participating state has its own limitation on fossil-fuel-fired electric power plant emissions. Each state's allowances, like California's, can be utilized interchangeably for compliance.

Where members are legally obligated to reduce their emissions.

A Kyoto Protocol unit equal to one metric tonne of carbon dioxide equivalent emissions absorbed or removed by a carbon sink project. RMUs are granted for carbon dioxide removal from the atmosphere by qualifying land use, land use change, and forestry activities.

Energy derived from sources that can be naturally renewed in a relatively short amount of time. The five most common renewable sources are biomass (such as wood and biogas), hydropower, geothermal (heat from inside the earth), wind, and solar.

Unlike a carbon offset, which represents one tonne of CO2e emissions reduction, a renewable energy credit represents one MWh of energy produced by a renewable energy source, such as solar, wind, or hydroelectric power.

To permanently remove carbon offsets from the market in order to prevent them from being resold after they’ve been used up. Offsets are typically decommissioned by assigning them unique serial numbers and registering them in an official registry.

The release of greenhouse gases into the atmosphere from sources such as buildings and operations directly owned or controlled by an organization. For example, if a company owns a fleet of trucks, the greenhouse gases emitted by these trucks would count towards the company’s Scope 1 emissions.

The discharge of greenhouse gases as a result of the electricity, heating, cooling, or steam generation required to power an organization’s buildings and other facilities. For example, if a company’s headquarters building draws power from a coal-fired power plant, a proportional amount of the emissions resulting from that coal plant’s electricity generation would count towards the company’s Scope 2 emissions.

The release of greenhouse gases into the atmosphere generated as a result of an organization’s activities, but physically produced by another entity. For example, if you drive a fossil-fuel-powered car, the emissions it produces would count towards the car manufacturer’s Scope 3 emissions.

The removal of carbon dioxide from the atmosphere through biological (for example, photosynthesis in plants and trees), chemical (for example, turning CO2 into carbonate minerals), or physical processes (for example, storage of carbon dioxide in underground reservoirs).

The United Nations established 17 global development goals for all countries through a participatory process, elaborated in the 2030 Agenda for Sustainable Development. These goals include ending poverty and hunger, ensuring health and well-being, education, gender equality, clean water and energy, and decent work; and building and ensuring resilient and sustainable infrastructure, cities, and communities.

Adopted in 1992 and made available for signing during the Rio de Janeiro Earth Summit in 1992. It went into effect in March 1994 and had 197 signatories as of last year. (196 States and the European Union). The ultimate goal of the Convention is to ‘stabilise greenhouse gas concentrations in the atmosphere at a level that would preclude hazardous anthropogenic influence with the climate system.' Two accords pursue and implement the Convention's provisions: first the Kyoto Protocol, and now the Paris Agreement.

Carbon offsets that can be quantified, tracked, and validated are known as verifiable offsets. (This is one of four factors to consider when acquiring carbon offsets.)

An authorised third-party auditor conducts an impartial review of the carbon offset project design and baseline calculations prior to the start of project activity.

A unit equating to one metric tonne of certified, reduced, and issued carbon dioxide equivalent emissions under the Verified Carbon Standard.

Carbon credit generated by a project that has been independently validated outside of the Kyoto Protocol. One VER equals one tonne of CO2e emission savings.

This is a certification standard for non-governmental emission reduction initiatives, similar to the Gold Standard. It participates in the Clean Development Mechanism (CDM), the Voluntary Carbon Market, and many climate and development initiatives.

The year of emissions reduction that a carbon credit belongs to. The vintage of an offset may not necessarily match the year of the transaction, and the vintage year may even be in the future.

A carbon market in which members are not legally compelled to reduce their emissions but do so voluntarily. These markets enable carbon emitters to offset their emissions by acquiring carbon credits generated by third-party initiatives aimed at removing or decreasing GHG emissions from the environment. Companies can engage in the voluntary carbon market on their own or as part of an industry-wide program.