Carbon credits explained: what is one carbon credit?
What one carbon credit means, compliance vs voluntary markets, avoidance vs removal, additionality, permanence, registries, ICVCM labels and Article 6, in plain words.
Compliance markets and voluntary markets: what is the difference?
There are two broad kinds of carbon markets.
Compliance markets are created by law. A government sets a limit or a target for certain companies, and those companies must hold enough allowances or credits to cover their emissions or their shortfall. The EU Emissions Trading System is the best-known example. India's Carbon Credit Trading Scheme (CCTS), notified in June 2023, has a compliance mechanism for large industrial units (see our article on the CCTS).
Voluntary markets are used by organisations that are not required by law to buy credits but choose to, usually to support a climate claim or to fund projects. Here the rules come from private standards such as Verra and Gold Standard, not from a government.
The line between them is blurring. India's CCTS has a voluntary "offset mechanism" inside a government scheme, and some international compliance systems accept certain voluntary-standard credits.
Sources: Verra: Verified Carbon Standard (VCS) Program; Verra: First ICVCM CCP labels now active on the Verra Registry (2024); ICVCM: Core Carbon Principles; ICVCM: Integrity Council approves three cookstove methodologies among latest decisions (2025); Gold Standard for the Global Goals; UNFCCC: The Paris Agreement (2015), Article 6; Ministry of Power / Gazette: Carbon Credit Trading Scheme, 2023, S.O. 2825(E), 28 June 2023 (cited via BEE Detailed Procedure for Compliance Mechanism); CERC (Terms and Conditions for Purchase and Sale of Carbon Credit Certificates) Regulations, 2026
This article was prepared with AI assistance and checked by the GreenEye team against the sources shown in each section.
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