A carbon credit is a marketable permit or certificate that grants the holder the ability to release one ton of carbon dioxide or the equivalent of another greenhouse gas — it is effectively an offset for those who create such gases. The primary purpose of creating carbon credits is to minimize carbon dioxide and other greenhouse gas emissions from industrial activity to mitigate the consequences of global warming. A carbon credit is a strategy for reducing greenhouse gas emissions. Caps on greenhouse gas emissions are imposed by governments or regulatory bodies. Immediate emission reductions are not economically possible for certain businesses. As a result, they can buy carbon credits to meet the emission quota. Voluntary Emissions Reduction refers to a carbon offset that is exchanged for credits in the over-the-counter or voluntary market (VER). Whereas Certified Emissions Reduction refers to emission units (or credits) generated within a regulatory framework for the goal of offsetting a project's emissions (CER). The fundamental distinction between the two is that the CER, as opposed to the VER, is regulated by a third-party certification organization.
A prominent development in the global carbon credit market is the adoption of an international carbon credit by numerous nations and state government entities. The Kyoto Protocol has been widely embraced by the European Union, which inaugurated the European Union Emission Trading Scheme (EU ETS) in 2015. The EU implements a basic cap and trade approach for EU enterprises and nations as a result of this. However, because the US government did not sign the Kyoto Protocol, there are no limits on carbon emissions in the country. Nonetheless, many businesses and state governments are making voluntary pledges to cut carbon emissions. For example, in 2013, California's Cap-and-Trade Scheme, a state effort, launched its own cap-and-trade program. Electric power stations, industrial operations, and fuel distributors are all subject to regulation. To summarize, the use of carbon credits by local governments and businesses is a prominent trend in the worldwide carbon credit market.