At their core, both carbon credits and carbon offsets serve as accounting mechanisms to help balance our collective carbon emissions. However, while people often use the terms interchangeably, “carbon credits” and “carbon offsets” have some important differences.

Similarities

Both credits and offsets represent one tonne of carbon dioxide (or its equivalent) that someone, somewhere, has prevented from entering (or actively removed from)the atmosphere. Each tonne is tracked so it can only be claimed once. Once a credit or offset is used (or “retired”) to account for actual emissions, it can’t be resold or reused.

Carbon Offsets: Removing CO₂ from the Atmosphere

“Carbon offsets” focus on pulling existing CO₂ out of the air, or preventing it from escaping in the first place. This is also called “carbon sequestration.” Offsetting projects range from reforestation and restoring wetlands, to more high-tech approaches such as direct air capture, mineralising CO₂ into rock, or capturing methane at landfills.

In these projects, independent organisations measure how much carbon they remove or prevent, and then sell these offsets to companies or individuals looking to balance out their unavoidable emissions. This forms part of the voluntary carbon market. Anyone can buy these offsets, even if not required by law.

If you think of a polluted water source, a “chemical offset” would equate to purifying the water by removing pollutants that are already there. The overarching goal is to reduce the concentration of harmful substances over time.

Carbon Credits: Reducing CO₂ Before It’s Emitted

“Carbon credits” typically apply to government-created cap-and-trade programmes or emissions trading schemes. In these systems, a regulatory body sets a maximum limit (“cap”) on how much CO₂ a company or an entire industry can emit. Each tonne of CO₂ under that cap is converted into a credit. Companies that stay under their allotted quota can sell unused credits to those that exceed it.

Because these legal caps force overall emissions to remain at or below a set threshold, compliance markets like the EU Emission Trading System or California’s cap-and-trade scheme usually deal in carbon credits. Here, an organisation might not be actively removing CO₂ from the atmosphere; instead, it’s cutting down on how much it emits relative to the cap. In the water pollution analogy, think of it as limiting the amount of chemicals you can dump into the reservoir and allowing you to sell any leftover “dumping rights” if you haven’t used them.

The Two Carbon Markets

From these definitions, we can see that carbon credits generally live within the compliance market, where governments require companies to limit emissions while carbon offsets tend to be traded in the voluntary market by any organisation or individual aiming for net zero or wanting to neutralise previous emissions.

Compliance schemes have been growing, leading to fragmented carbon credit markets around the world. The EU has its own Emissions Trading System, while states like California run their own programmes. On the other hand, the voluntary market for offsets remains smaller for now but is expected to grow significantly as more people and businesses look to negate their carbon footprint.

Which One Do You Need?

For many large companies in regulated sectors, carbon credits aren’t a choice; they’re a legal requirement. Meeting or staying below a government cap on emissions involves purchasing credits if internal reductions aren’t enough. Ambitious organisations and individuals then go a step further by buying carbon offsets to remove or negate additional CO₂.

In other words, if you’re a consumer who simply wants to counterbalance your travel or lifestyle emissions, purchasing offsets from a reputable project is usually your best option. If you’re a company operating under a cap-and-trade system, you’ll likely need credits to stay compliant and may also invest in offsets to go beyond legal requirements.

Ultimately, both approaches matter because the world must not only stop adding CO₂ to our “water supply,” but also start removing what’s already there. Carbon credits help clamp down on new emissions, while offsets aim to pull existing CO₂ out of the air. Both are crucial tools in our global effort to meet climate targets and understanding how each one works helps you decide which route is right for your specific goals.

‍