Carbon credits and offsets: the quality tests

A carbon credit represents one tonne of carbon dioxide equivalent that has been reduced, avoided or removed from the atmosphere. When a company buys a credit and uses it to compensate for its own emissions, the credit is called an offset.

Credits are traded in two kinds of markets. In compliance markets, governments create credits and require companies to use them. In voluntary markets, companies buy credits by choice, usually to support net zero or carbon neutral claims.

The voluntary market has faced serious questions about quality. Studies and media investigations have found projects whose credits did not represent real, additional or lasting cuts. For an analyst, the question is never just "how many credits did the company buy?" but "what are those credits worth as evidence of real climate action?"

Types of credits

• Avoidance or reduction credits: from projects that prevent emissions, such as renewable energy, clean cookstoves, landfill methane capture or protecting forests from being cut down
• Removal credits: from projects that take carbon out of the air, such as tree planting, mangrove restoration, soil carbon, biochar or direct air capture

The main quality tests

Standards and integrity bodies

• Crediting standards: Verra's Verified Carbon Standard and the Gold Standard are the largest in the voluntary market
• Paris Agreement mechanisms: Article 6.2 lets countries trade emission reductions bilaterally; Article 6.4 creates a UN-supervised crediting mechanism
• Integrity bodies: the Integrity Council for the Voluntary Carbon Market sets Core Carbon Principles for credit quality, and the Voluntary Carbon Markets Integrity Initiative sets rules for how companies can make claims
• Aviation: CORSIA, the international aviation scheme, accepts only certain credits

Market trends

The World Bank's 2026 report found that credit issuances rose 8% from 2024 to 2025, while prices fell slightly. Projects eligible for use by international airlines, and highly rated forest projects, still commanded a premium.

India's routes

• CCTS offset mechanism: non-obligated entities can register projects under approved methodologies, including green hydrogen, pumped hydro storage, biogas, industrial energy efficiency and mangrove planting, and earn Carbon Credit Certificates. About 40 projects had been registered or submitted by September 2026. Offset credits cannot be used by obligated entities to meet their targets in the main compliance mechanism.
• Article 6.2: in August 2025, India and Japan signed a Memorandum of Cooperation on a Joint Crediting Mechanism, under which credits from low-carbon projects in India are shared between the two countries.
• Green Credit Programme: a separate scheme for environmental actions such as tree planting, covered in its own glossary entry. Green credits are not carbon credits.