You've probably heard the term "carbon credits" in a news headline or a corporate sustainability report. Maybe you've seen a company claim to be "carbon neutral" and wondered what that actually means, or whether it means anything at all.
The short answer: a carbon credit is a certificate for one metric ton of carbon dioxide kept out of, or removed from, the atmosphere. Companies buy them to balance out emissions they can’t reduce from their existing process. Some credits fund real climate work; others have credibility issues and aren’t worth much. Knowing the difference is worth your time, whether you’re a consumer, a business owner, or just someone who wants to know how the world is trying to deal with climate change.
Every standing tree is an active carbon sink — absorbing CO2 as it grows and storing it in wood, roots, and soil.
What Is a Carbon Credit?
One carbon credit represents one metric ton of carbon dioxide either removed from the atmosphere or prevented from being released into it. Think of it as a certificate that says: "This specific action kept one ton of CO2 out of the air, and here's the proof."
Companies buy these credits to offset their own emissions. If a corporation produces 100,000 tons of CO2 per year and can't eliminate all of it through operational changes, it might purchase credits to cover the gap. The idea is that the net effect on the atmosphere is the same — a ton reduced somewhere else is equivalent to a ton reduced at the source.
That's the theory. The practice is more complicated, and that's where things get a little murky.
How Are Carbon Credits Created?
A carbon credit doesn't just appear. Someone has to do something that measurably reduces or removes carbon, and then prove it. The process works like this:
1. A project developer identifies an activity that will capture or prevent carbon emissions. This could be planting trees, protecting an existing forest from being cut down, capturing methane from a landfill, installing renewable energy in a community that would otherwise use fossil fuels, spreading biochar on farmland, or even pulling CO2 directly out of the air with machines.
2. The developer selects a recognized methodology — a set of rules for measuring how much carbon the project actually affects. They register the project with a standard-setting body. The big ones are Verra (which runs the Verified Carbon Standard), Gold Standard, the American Carbon Registry, and the Climate Action Reserve. These organizations function like auditing firms for carbon claims.
3. An independent third-party auditor visits the project, reviews the data, and verifies that the carbon reductions are real and accurately measured. If everything checks out, the standard body issues credits, each with a unique serial number, into a public registry.
4. Those credits are sold to buyers — usually corporations, but increasingly governments and individuals. When a buyer uses a credit to offset their emissions, it gets "retired" — permanently removed from circulation so it can't be resold.
Third-party auditors verify carbon projects on the ground — measuring trees, reviewing data, and confirming that reductions are real before credits are issued.
Why Are Some Carbon Credits Worthless?
Here's where the market's reputation problems live. For a carbon credit to mean anything, it has to pass several tests that sound simple but turn out to be fiendishly hard to guarantee.
Additionality. Would this carbon reduction have happened anyway, even without the credit revenue? If a forest was never going to be cut down, "protecting" it and selling credits for it is just selling air. This is the single biggest source of controversy in carbon markets. A January 2023 investigation by The Guardian, Die Zeit, and SourceMaterial found that more than 90% of rainforest carbon credits from certain tropical forest protection projects overstated their impact — the threat to those forests had been overestimated by roughly 400% on average, meaning the credits represented phantom reductions that never actually happened.
A 2023 Guardian investigation found that deforestation threats were overstated by roughly 400% in some carbon offset projects — meaning the credits were protecting forests that were never at risk.
Permanence. Will the carbon stay stored? A tree absorbs carbon as it grows, but if it burns down in a wildfire five years later, that carbon goes right back into the atmosphere. Permanence is relatively easy for engineered solutions (carbon mineralized into rock isn't going anywhere) but genuinely difficult for nature-based projects.
Leakage. Does the project just push the problem somewhere else? Protecting one forest from logging doesn't help the climate if the logging company simply moves to the next forest over.
Accurate baselining. What would have happened without the project? If your baseline scenario assumes aggressive deforestation that was never going to occur, every credit you issue is inflated. Getting baselines right requires honest, conservative modeling — and there are strong financial incentives to be neither honest nor conservative.
No double counting. The same ton of carbon can't be claimed by both a country (toward its national climate pledge) and a corporation (toward its net-zero goal). Sounds obvious, but the accounting systems to prevent this are still being built.
What Are the Two Carbon Markets?
Carbon credits trade in two distinct markets, and they operate very differently.
Compliance market - created by government regulation. In systems like California's cap-and-trade program or the European Union's Emissions Trading System, companies are legally required to hold enough credits (or "allowances") to cover their emissions. If they emit more than their allowance, they must buy additional credits or face penalties. Prices are set by supply and demand within a regulated framework. This market is large, liquid, and relatively well-policed.
Carbon credits trade in two distinct markets: the regulated compliance market (worth billions) and the voluntary market where companies buy offsets by choice. 📷 Photo by Jakub Żerdzicki on Unsplash
Voluntary market - where companies buy credits by choice to meet self-imposed sustainability goals, satisfy investor expectations, or burnish their public image. There's no legal requirement. Prices, quality, and transparency vary enormously. This is where most of the innovation happens, but also where most of the greenwashing lives.
The voluntary market peaked at nearly $2 billion in 2022. Then a credibility crisis hit: in 2023, transaction volume fell 56% and the market’s value dropped to about $723 million, according to Ecosystem Marketplace. It’s now in a rebuilding phase, with new integrity frameworks like the IC-VCM’s Core Carbon Principles trying to separate legitimate credits from junk.
How Much Does a Carbon Credit Cost?
Prices span an enormous range, and the spread tells you a lot about the market's quality problem.
Estimates vary, but avoided-deforestation credits from projects with questionable baselines can trade for just a few dollars per ton. Nature-based credits from well-verified projects — reforestation, improved forest management, regenerative agriculture — often sell for $10 to $40 per ton. Engineered carbon removal, like direct air capture, can cost several hundred dollars per ton. Across the whole voluntary market, buyers paid an average of $6.53 per ton in 2023.
The price difference reflects both the cost of the underlying activity and the market's assessment of quality. Cheap credits are cheap for a reason. As the integrity frameworks tighten, the expectation is that prices for high-quality credits will rise while junk credits become unsellable.
Infographic of simplified process of carbon credits
Who Gets Paid When a Carbon Credit Is Sold?
The carbon credit supply chain has several layers, and understanding who gets paid helps clarify the economics.
Project developer does the actual work — planting trees, managing forests, running equipment. They bear the upfront costs and the operational risk. In a well-functioning project, they receive the largest share of credit revenue.
Standard bodies (Verra, Gold Standard, etc.) charge registration and issuance fees. They maintain the registries and set the methodological rules.
Third-party auditors charge for validation (reviewing the project plan) and verification (reviewing actual results). These audits can run tens of thousands of dollars, depending on project complexity.
Brokers and marketplaces connect buyers and sellers and take a commission on each sale. Platforms like Xpansiv (CBL), Patch, and Cloverly operate in this space.
Aggregators bundle many small projects — like individual family forest owners — under a single methodology, handling the paperwork and verification costs that would be prohibitive for any one landowner. They take a management fee and distribute revenue to participants. The Family Forest Carbon Program is a good example of this model.
Buyers — corporations, mostly — are the demand side. They purchase credits through brokers, directly from developers, or on exchanges. Many also hire consultants to build their offset strategy and ensure they're buying credible credits.
What’s Changing in the Carbon Market Right Now?
The carbon credit market is in a pivotal transition. Several forces are reshaping it simultaneously.
Regulation is tightening, unevenly. Since September 27, 2026, EU rules ban companies from calling a product “carbon neutral” when that claim rests on offsets. In the US, the SEC’s 2024 climate disclosure rule never took effect, and the agency is now moving to rescind it, though California and New York have their own climate reporting rules or proposals. Offsets aren’t banned anywhere, but the bar for a credible claim keeps rising, especially in Europe.
The Integrity Council for the Voluntary Carbon Market (IC-VCM) launched its Core Carbon Principles framework to create a quality benchmark. Credits that earn the CCP label have passed a higher bar for additionality, permanence, and measurement rigor. This is splitting the market into a two-tier system — labeled credits that command premium prices, and unlabeled credits that increasingly struggle to find buyers.
Satellite imagery, LiDAR, and AI-driven monitoring are replacing expensive field audits — making carbon credit verification faster, cheaper, and more credible.
Technology is making measurement better and cheaper. Satellite imagery, LiDAR, AI-driven monitoring, and remote sensing are replacing expensive manual field audits for some project types. Better measurement means more credible credits, which means higher prices and more capital flowing to real projects.
New project types are emerging. Blue carbon (mangroves, seagrass), biochar, enhanced rock weathering, and direct air capture are expanding the menu beyond the traditional forest and renewable energy projects. Each brings different cost structures, permanence profiles, and scalability potential.
Why Do Carbon Credits Matter If You Never Buy One?
Even if you never buy or sell a carbon credit, the market affects you. It channels billions of dollars toward — or away from — conservation and climate projects. When it works well, it creates financial incentives for landowners to keep forests standing, for farmers to adopt regenerative practices, and for engineers to develop carbon removal technology. When it works badly, it lets polluters buy cheap absolution while nothing actually changes.
The difference between those outcomes comes down to integrity — in measurement, in verification, and in the willingness of buyers to pay for quality rather than the cheapest ton on the market. That's a choice being made right now, by companies, standard-setters, regulators, and the organizations building the next generation of carbon projects.
Understanding how the system works is the first step toward having an opinion about whether it's working well enough.
Long Island Lens📍
Carbon markets can feel like something happening far away. Here’s where they touch Long Island.
We’re already part of a compliance market. New York is a member of the Regional Greenhouse Gas Initiative (RGGI), a cap-and-trade program for power plants in the Northeast and Mid-Atlantic that began in 2009. Fossil-fuel plants of 25 megawatts or more, including the large plants here on Long Island, must hold one allowance for every ton of CO2 they emit. It’s the compliance market from earlier in this guide, operating in our backyard.
A bigger state program is on hold. New York planned an economy-wide “cap-and-invest” program that would put a price on emissions well beyond power plants. Amendments to the state climate law in 2026 pushed it back, and the regulations are now due by the end of 2028.
Our bays and marshes store “blue carbon.” Salt marshes and eelgrass beds lock carbon away in their mud. A 2023 U.S. Geological Survey study covering the coast from Maine to Long Island estimated about 7.5 million metric tons of carbon stored in these habitats, and called that an undercount. Every marsh restoration and eelgrass planting on the South Shore or in the Peconic Estuary helps protect that store.
Our forests and farmland count too. Land trusts protect forests and farmland, often with conservation easements (see our guide to parks, preserves, land trusts and conservation easements). And the Family Forest Carbon Program shows how small landowners can get paid to keep forests healthy.
Want to help? Find an environmental event or volunteer day near you on PPN.
Carbon Credits FAQs
Can individuals buy carbon credits?
Yes. Some platforms sell credits to individuals, though most buyers are companies. Look for credits verified by a major standard like Verra or Gold Standard, ideally carrying the IC-VCM Core Carbon Principles label.
Does buying carbon credits make a company “carbon neutral”?
That’s the claim, and it’s why the term is controversial. It depends on the quality of the credits and on whether the company is also cutting its own emissions. In the EU, companies can no longer call a product carbon neutral based on offsets alone.
How can you tell a good carbon credit from a bad one?
Check that it’s verified and listed on a public registry. Then ask four questions: Would it have happened anyway? Will the carbon stay stored? Did the problem just move somewhere else? Was the baseline honest? Very cheap credits are usually cheap for a reason.
What’s the difference between carbon credits and carbon offsets?
People use the terms interchangeably. Strictly, the credit is the certificate, and the offset is what a buyer does with it: using the credit to cancel out its own emissions.
Sources
Verra — Verified Carbon Standard
Gold Standard
American Carbon Registry
Climate Action Reserve
Integrity Council for the Voluntary Carbon Market (IC-VCM)
IC-VCM Core Carbon Principles
The Guardian — "Revealed: more than 90% of rainforest carbon offsets by biggest provider are worthless" (January 2023)
Forest Trends / Ecosystem Marketplace — "The Voluntary Carbon Market Contracted in 2023"
European Union Emissions Trading System (EU ETS)
EU Directive 2024/825 — Empowering Consumers for the Green Transition
Ballotpedia — "SEC moves to rescind 2024 climate disclosure rule" (May 2026)
Regional Greenhouse Gas Initiative (RGGI)
Environmental Defense Fund — "Breaking down New York’s 2026 climate law amendments" (July 2026)
U.S. Geological Survey — Blue carbon reservoirs from Maine to Long Island, NY (2023)
Family Forest Carbon Program
For more on the Family Forest Carbon Program and how Long Island connects to the carbon credit landscape, see our companion piece: "Getting Paid to Keep Forests Healthy: What Long Island Can Learn from the Family Forest Carbon Program."
