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Carbon credit

Carbon credit

An instrument of environmental policy

A carbon credit is intended to help individuals and organizations account for the environmental costs of their activity. These credits are used to convey a net climate benefit from one entity to another. And, because emissions mix in the atmosphere on a global scale, credits to not have to be applied locally. One credit is generally reflected as the equivalent to one ton of carbon dioxide.

A carbon credit is generally one part of a cap-and-trade program. In the program, companies are given a set number of credits, intended to represent the allocation of emissions allowed under a regulatory program. The company can in turn sell unused credits, or purchase new credits in the case where more emissions are spent.

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