A carbon credit is a tradeable certificate that represents the removal or reduction of one metric ton of carbon dioxide or its equivalent from the atmosphere. When a company, a government, or a project absorbs or prevents the emission of one ton of CO₂ that would have otherwise entered the atmosphere, it earns one carbon credit. That credit can then be sold to another party, typically a business that is emitting more carbon than it is allowed to.
Basically, companies and countries are given carbon credits based on the amount of carbon dioxide they reduce in their emissions. These companies and countries can trade these credits for money with other companies or countries.
2.1. Carbon Trading
The system is called Carbon Trading, and it works by setting a limit, called a cap, on how much carbon a company or industry is allowed to emit. If a company emits less carbon dioxide than its limit, it earns proportional credits that it can sell. If it emits more carbon dioxide, it must buy credits to cover the excess. This is called a Cap-and-Trade system.
2.2 Carbon credit market
⦁ Trading carbon, building a greener future
⦁ Turning emissions into opportunity
⦁ Invest in a cleaner tomorrow, earn more energy
⦁ Empowering climate action through markets
⦁ Sustainability meets profitability
2.3. Who created the system?
This concept of carbon credit was first formalised under the Kyoto Protocol in 1997, which introduced the Clean Development Mechanism (CDM), allowing countries to earn credits by reducing their carbon footprint and emissions.
While it is active, a carbon credit can be traded and resold multiple times. However, after a buyer “retires” the credit to offset their emissions, that credit is permanently cancelled and cannot be used again. This retirement mechanism ensures that each ton of removed CO₂ is counted only once, preventing double-use of the same environmental benefit.
Carbon credits are traded on both regulated exchanges and private markets. Compliance market credits trade on government-run or licensed exchanges. Voluntary credits are traded through platforms. India’s Carbon Credit Trading Scheme (CCTS), launched in 2023, is a growing domestic platform for Indian projects.
⦁ Environmental benefits
⦁ Economic benefits for the country and the company
⦁ Overall financial growth
⦁ Transfer of Technology
⦁ Source of extra Income for companies
⦁ Industries are buying carbon credits instead of switching to greener technologies.
⦁ Carbon reduction in one place and Carbon emission in another place.
⦁ Kyoto protocol
⦁ The COP26 Agreement
Buyers are companies or organizations that want to reduce their carbon footprint and contribute to a sustainable environment.
Sellers are companies or organizations that are switching to greener technologies and producing fewer carbon emissions.
⦁ Afforestation
⦁ Generation of Solar Energy
⦁ Controlled combustion
⦁ Carbon farming
⦁ Carbon credit Futures contract
⦁ Carbon credit ETFs
⦁ Individual companies
Within the next decade, carbon is likely to be the most traded commodity in the entire world. For solar developers and Independent Power Producers, the future of carbon credits is amazingly great. Rising prices, improving infrastructure, clearer regulation, and growing corporate demand all point in one direction: carbon credits generated by solar projects will become more valuable and bankable over the next decade. The IPPs that build carbon credit registration into their project development process from day one will be the ones that capture maximum value from this growing market.
Yes, absolutely. A solar IPP earns carbon credits by generating clean electricity that displaces carbon and other greenhouse gas emissions. Every unit of solar energy produced avoids a corresponding amount of CO₂ that a coal or gas plant would have otherwise emitted.
Ground-mounted structures (GMS) generate far more carbon credits because of their much larger scale and comparatively higher energy output per installation. Rooftop projects can still earn credits, but comparatively less than ground-mounted structures (GMS).
Most grid-connected solar projects in India are eligible for carbon credits. The key question is: Is your project connected to the grid and displacing fossil-fuel and greenhouse gas generation? Does it have reliable metered generation data? A feasibility test can be conducted, which will help you quickly determine your project’s eligibility and estimated annual credit generation.
We offer end-to-end carbon credit services for solar IPPs and project developers. Whether your project is under development, under construction, or already operational, our dedicated team will guide you through every step of the process to ensure you get maximum value from your solar investment and turn it into an asset. Get in touch with our team today for more information regarding the same for your project.
