Definition of the word carbon credit

The term "carbon credit" originated in the 1990s in relation to international efforts to mitigate climate change. The concept of a carbon credit system was first introduced in the United Nations Framework Convention on Climate Change (UNFCCC) in 1997, during the third Conference of the Parties (COP3) in Kyoto, Japan. Under the Kyoto Protocol, Annex I countries (industrialized countries and economies in transition) were required to reduce their greenhouse gas emissions to a certain level. Carbon credits were created as a way for these countries to meet their obligations. The credits represented permits to emit one tonne of carbon dioxide equivalent (tCO2e) and could be bought and sold between countries or entities that had a surplus of credits and those that needed them to meet their targets. The motivation behind the use of carbon credits was to provide a market-based mechanism to incentivize reducing greenhouse gas emissions. By allowing credits to be traded, companies and countries could opt to reduce their emissions below their targets and sell any surplus credits for a profit, creating a financial incentive for lower emissions. In summary, the term "carbon credit" refers to a tradable permit that represents one tonne of carbon dioxide equivalent (tCO2e) and allows the holder to emit that quantity of greenhouse gases. It originated as part of international efforts to combat climate change under the Kyoto Protocol, which aimed to limit global greenhouse gas emissions through market mechanisms.