Definition of carbon credit

The United Nations' Clean Development Mechanism (CDM) scheme awards tradeable carbon credits to projects that reduce developing countries’ greenhouse gas emissions – such as wind farms, solar power, or the capture of methane.

Each carbon credit, known as a Certified Emission Reduction (CER), represents a tonne of carbon dioxide, or equivalent for other greenhouse gases, which is not emitted.

In order to be awarded credits, project developers’ plans must be approved by the mechanism’s executive board, which has drawn up strict methodologies that projects must adhere to.

Credits’ prices are determined by the market. They are volatile and currently sell for about $10 to $15. The price is heavily influenced by the European Union’s emissions trading scheme because companies can also buy CDM credits to fulfil their quotas.  [1]