Carbon credits were developed as a mechanism to reduce greenhouse gas emissions.
Companies receive a certain amount of credit, which decreases over time, and they can sell any excess to another company.
Carbon credits provide companies with a monetary incentive to reduce carbon emissions. Those who cannot cut emissions easily can still operate at higher financial costs.
Carbon credits are based on the cap-and-trade model that was used to reduce sulfur pollution in the 1990s.
Negotiators at the COP26 climate change summit in Glasgow in November 2021 agreed to create a global carbon trading market.