2. And what exactly are carbon credits?

Carbon credits are intangible assets (similar to mileage points, brands, and cryptocurrencies) and therefore are digital certificates.

These digital certificates (carbon credits) prove that a company or an environmental project (forest conservation, reforestation of devastated areas, clean energy, biomass, etc.) avoided the emission of 1 tonne of CO2e (carbon dioxide equivalent) in a given year, preventing environmental pollution. Therefore, they are a way of remunerating the people who provide these services.

Carbon credits only exist because an environmental service was provided and audited (demonstrably). Therefore, they are immutable, as they refer to a conservation service that has already been carried out.

Understand how greenhouse gases are accounted for the origination of carbon credits:

It is important to point out that:

1 carbon credit = 1 tonne of CO2e neutralized

Greenhouse gases (GHG) are those that worsen global warming, and effectively contribute to the climate crisis. They come from polluting activities in our day-to-day life, such as transport, electricity consumption, etc.

The main GHGs are CO2 (carbon dioxide), CH4 (methane), and N2O (nitrous oxide). Carbon dioxide is the major contributor to global warming.

To facilitate conversion into carbon credits, all GHGs are converted into carbon dioxide equivalent (CO2e), through a calculation of comparison of each gas’ pollution potential.

What is the purpose of carbon credits?

Let's compare carbon credits to a barrel of oil and a bottle of wine: they are there to be consumed and have no expiration date.

Therefore, the purpose of a carbon credit is its consumption. It is to make it cease to exist. This happens from its write-off for compensation in its global registry (digital notary). Such write-off is also called “retirement” or “cancellation” for traditional registry credits and “burn” for tokenized credits.

The credit exists to be used, retired/burned, and the holder, in return, receives a certificate. Thus, the person who carried out the credit retirement can prove and claim that they have offset a certain part of their greenhouse gas emissions or their carbon footprint, as we also call it.

Disclosure of offset requires that the credit ceases to exist, meaning that it is retired or canceled (in the case of traditional registries), or that the token is burned (in the case of tokenized credits, on the blockchain).

Just buying carbon credits, without retiring them, doesn't represent offset, as just buying a barrel of oil doesn't make a car run.