Carbon markets, explained.

What is a carbon credit?

A carbon credit is a tradable instrument representing one tonne of carbon dioxide equivalent (CO₂e) that has been reduced, removed or avoided by a verified project. Credits are issued by recognised standards after independent verification, and can be purchased by companies or governments to compensate for emissions they cannot yet eliminate.

Once a credit is used to offset an emission, it is permanently “retired” in a registry so it cannot be sold or claimed twice.

Compliance vs voluntary markets

Carbon markets fall into two broad categories:

• Compliance markets are created by law or regulation. Participants — airlines under CORSIA, industrial emitters under emissions trading systems, taxpayers under carbon tax regimes — must surrender eligible credits or allowances to meet legal obligations. Demand is structural, because it is mandated.
• Voluntary markets serve companies and individuals offsetting emissions by choice, typically as part of net-zero commitments. Demand depends on corporate policy and reputation.

AGCF focuses on projects eligible under compliance schemes, where demand is anchored in regulation.

Reduction, removal and avoidance — what is the difference?

These three terms describe how a project generates its climate benefit:

• Removal takes CO₂ that is already in the atmosphere and sequesters it — for example mangrove and forest restoration, soil carbon sequestration through regenerative agriculture, or direct air capture. Removal is essential to reach net zero, because some emissions cannot be eliminated at source.
• Reduction lowers the emissions an existing activity produces — for example alternate wetting and drying in rice cultivation, which suppresses methane, or replacing diesel buses with electric vehicles.
• Avoidance prevents emissions that would otherwise have occurred — for example keeping coal in the ground, avoiding deforestation, or capturing methane before it is vented.

A balanced portfolio combines all three: removals build long-term carbon stocks, while reductions and avoidance deliver accelerated near-term impact.

Article 6 of the Paris Agreement & ITMOs

Article 6 of the Paris Agreement establishes the rules for international cooperation on emission reductions. Under Article 6.2, countries can transfer verified mitigation outcomes to one another — these are known as Internationally Transferred Mitigation Outcomes (ITMOs).

When a project in one country generates ITMOs, a purchasing country can count them toward its own Nationally Determined Contribution (NDC), subject to a “corresponding adjustment” that prevents both countries claiming the same reduction. This mechanism creates sovereign-level demand for high-integrity credits.

CORSIA, emissions trading systems & carbon taxes

• CORSIA — the Carbon Offsetting and Reduction Scheme for International Aviation — requires airlines to offset the growth of their international flight emissions using eligible credits.
• Emissions trading systems (ETSs) cap total emissions and let participants trade allowances; several systems progressively integrate offsets and removals, including the EU’s Carbon Removal & Carbon Farming Certification Framework (CRCF).
• Carbon taxes put a direct price on emissions and are in force in more than twenty European countries as well as Canada, Japan, Singapore, South Korea, South Africa and Colombia; several regimes allow offsets to reduce liability.

Verification & integrity

The value of a carbon credit rests on its integrity. High-quality projects demonstrate additionality (the climate benefit would not have happened without the project), permanence (the carbon stays reduced or stored), and accurate measurement, confirmed by independent third-party validation and verification bodies against recognised methodologies. Ongoing monitoring continues throughout the crediting period.