A carbon credit is the environmental commodity exchanged in the carbon market.
Carbon credits are created by GHG emission reduction projects implemented by a company. Following the implementation of the project to reduce greenhouse gas emissions, the company must proceed to quantification.
The quantification is based on a recognized methodology and consists of comparing GHG emissions after the implementation of the project to the baseline scenario which represents the practice before the project existed. The difference in GHG emissions then represents the number of carbon credits.
Contrary to its name, carbon credits do not consider only carbon dioxide.
The Kyoto Protocol identifies six gases that are largely responsible for global warming. Each greenhouse gas emission is rated according to a conversion factor, also called index of global warming, to represent the potential of damaging the atmosphere, or carbon dioxide equivalence.
CO2 conversion table
But there are other industrial gases harmful to the environment. For example, sulfur dioxide, responsible for acid rain gases is controlled outside of the carbon market.
Thus, each GHG is reported to the index of global warming :