What Are Carbon Credits, and How Are They Produced?

A carbon credit is defined as “a quantified environmental benefit that is designed to compensate for or neutralize impacts to habitat, environmental functions, or ecosystem services.”

Within the carbon industry, credits specifically refer to the reduction of the equivalent of one metric ton of carbon dioxide, avoided or sequestered by an entity to compensate for emitting that metric ton elsewhere.

Carbon credits are realized when trees take in carbon from the atmosphere and store it in the tree and soil. For a forestry carbon project to qualify as a verified emissions reduction and be claimed as an offset, stringent rules must be met.

• Permanence

  Simply stated, this makes sure the project will last. The Arbor Day Foundation utilizes various legal strategies to ensure projects are protected over the long term (at least 40 years).

• Risk Buffer

  The percentage of carbon credits that are withheld from the marketplace and reserved in a buffer account to compensate for any unanticipated loss of verified carbon benefits due to natural disasters or human-caused events down the road.

• Additionality

  This refers to the amount of carbon dioxide captured, stored, or prevented from reaching the atmosphere compared to what would happen without the project.

• Measurement and Monitoring

  Periodic field measurements of forest growth and associated capture and storage of carbon as well as, in some cases, analysis of satellite imagery and models of forest growth and deforestation are required.

• Verification

  Carbon benefits must be verified by an accredited independent third party. This typically occurs annually throughout the life of a project to ensure it meets its intended goals of carbon storage and that all additionality, measurement, leakage, and permanence requirements are being met.

• Leakage

  Carbon leakage occurs when the emissions avoided or reduced by one project or one region are pushed to another area that does not have rigorous climate policy. The Arbor Day Foundation accounts for this through the registries and protocols we work with.