The Global Impact of Carbon Credit Programs on Climate Change

How carbon credits work, their market size and growth, worldwide initiatives, and dual role in addressing climate change

The global climate crisis demands innovative solutions to curb greenhouse gas emissions and combat climate change. Carbon credit programs have emerged as a powerful tool in this effort. These programs provide tradable certificates, each representing the avoidance or absorption of one tonne of carbon dioxide (CO2) or equivalent greenhouse gasses. By incentivizing emission reductions and facilitating emissions trading, carbon credits play a pivotal role in global efforts to mitigate climate change. This article explores the significant global impact of carbon credit programs on climate change, examining how they work, their market size, worldwide initiatives, and their dual role in addressing climate change.

How Do Carbon Credits Work?

Carbon credits aim to reduce the emission of greenhouse gasses into the atmosphere. These credits grant the right to emit greenhouse gasses equivalent to one ton of carbon dioxide. This system is designed to encourage companies and nations to trade credits, creating a global emissions balancing act. The goal is to gradually reduce the number of available credits, motivating organizations to find innovative ways to reduce their greenhouse gas emissions.

The carbon credit concept simplifies trading in carbon dioxide, as it is the principal greenhouse gas. This system ensures that a 2,400-mile drive in terms of carbon dioxide emissions, for instance, can be offset by corresponding reductions or absorptions elsewhere.

Market Size and Growth

The carbon credit market has experienced rapid growth, fueled by international climate agreements and corporate efforts to reduce carbon footprints. In the European compliance market, carbon prices are expected to increase by 88 percent to approximately $67 per metric ton by 2030. This growth can be attributed to corporate commitments to achieving net-zero goals and aligning with international climate targets, particularly the Paris Agreement, which aims to limit global warming to 1.5 degrees Celsius above pre-industrial levels.

Worldwide Carbon Credit Initiatives

1. The Paris Climate Agreement

The Paris Agreement, signed by more than 190 nations in 2015, established emission standards and provided for emissions trading. Although the United States withdrew from the agreement in 2017, it re-entered in January 2021 under President Biden. The agreement’s broad scope encourages global cooperation in addressing climate change.

2. The Glasgow COP26 Climate Change Summit

In November 2021, negotiators at the Glasgow summit inked a deal that allows nations to work towards their climate targets by purchasing offset credits representing emission reductions by other countries. This agreement aims to drive investments in initiatives and technology to protect forests and develop renewable energy infrastructure to combat climate change.

3. Efforts from India

Since ratifying the Paris Agreement (PA), India has been a leading advocate for climate action, striving to align with global climate objectives through its ambitious Nationally Determined Contributions (NDC). These NDCs, initially revealed in 2015, entail specific quantitative targets:

Firstly, India aims to reduce the Greenhouse Gas (GHG) Emissions Intensity of its Gross Domestic Product (GDP) by 33-35 percent by 2030, compared to 2005 levels. Furthermore, the nation aspires to attain approximately 40 percent of its cumulative electric power installed capacity from non-fossil fuel-based energy sources by 2030, leveraging technology transfer and affordable international funding, including from the Green Climate Fund (GCF). Additionally, India seeks to establish an extra carbon sink of 2.5 to 3 billion tonnes of carbon dioxide equivalent via forest and tree cover expansion by 2030.

In line with the commitments made at the Conference of Parties (COP) 26 in Glasgow, India has updated its NDC with notable enhancements. It now emphasizes the promotion of sustainable lifestyles based on traditions and values of conservation and moderation, symbolized by the ‘LIFE’ movement – ‘Lifestyle for Environment.’ The updated NDC sets a higher benchmark for India, targeting a 45 percent reduction in Emissions Intensity of its GDP by 2030 (compared to 2005). Additionally, India aims to achieve 50 percent of its electric power capacity from non-fossil fuel sources by 2030, supported by technology transfer and cost-effective international financing, including contributions from the Green Climate Fund (GCF).

To facilitate the attainment of these ambitious NDC goals, the Indian Government has initiated the development of a domestic carbon market. This market will stimulate new opportunities for emissions reduction by encouraging private and public entities to invest in emission credits.

India has been actively promoting carbon reduction efforts. Advait Infratech, for example, has entered the carbon market, emphasizing the importance of addressing carbon emissions.

The Dual Role of Voluntary Carbon Credits

Carbon credits can be categorized as “voluntary carbon credits” when they are bought and retired on a voluntary basis rather than as part of compliance with legal obligations. The revenue from the sale of these voluntary carbon credits supports various carbon-reduction projects, including renewable energy, emissions avoidance, natural climate solutions, energy efficiency, and resource recovery.

Voluntary carbon credits offer a dual role in addressing climate change:

1. Short-term Impact: Projects focused on emissions avoidance/reduction can accelerate the transition to a decarbonized global economy. They drive investment into renewable energy, energy efficiency, and natural capital, which is a cost-efficient way to address atmospheric greenhouse gas concentrations.

2. Medium to Long-term Impact: Voluntary carbon credits can play a crucial role in scaling up carbon dioxide removals needed to neutralize residual emissions. This may involve natural climate solutions like reforestation and technology-based carbon capture and storage solutions. These credits offer financial support for scaling up these critical measures.

The Bottom Line

Carbon credits are a critical mechanism for reducing greenhouse gas emissions and incentivizing companies to reduce their carbon footprints. Companies are allocated a set number of credits, which decrease over time, leading to measurable, verifiable emission reductions. The global impact of carbon credit programs on climate change is evident, with their role in facilitating emissions reduction, encouraging sustainable practices, and contributing to international climate agreements. As the world strives to combat climate change, carbon credits continue to be a valuable tool in the fight against rising global temperatures.


The article is authored by Shalin Sheth, Founder & Managing Director, Advait Infratech Limited

The views expressed here are personal and do not necessarily represent those of the organisation or the publication