Carbon Credits
a.k.a. Carbon allowances, Carbon permits
Tradable permits that each allow the holder to emit a set amount of carbon dioxide, usually one tonne.
Carbon credits put a price on pollution. Under compliance schemes like the EU Emissions Trading System, a cap is set on total emissions and companies must hold allowances for what they emit. Firms that cut emissions can sell spare allowances to those that need more.
There is also a looser voluntary market where companies buy credits from projects that claim to cut or absorb emissions; quality there varies a lot. Carbon allowances trade on exchanges and have become a commodity of their own.
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