Jump to:

• Key takeaways: Carbon credits at a glance
• What is a carbon credit?
• Why use carbon credits?
• How are carbon credits used in the UK?
• How are carbon credits created?
• What is the difference between carbon credits and carbon offsets?
• How much do carbon credits cost in the UK?
• How should UK businesses use carbon credits to achieve net zero?
• How to buy carbon credits without greenwashing
• How carbon credits help fuel-reliant businesses
• Carbon credit FAQs

Key takeaways: Carbon credits at a glance

• 1 carbon credit = one tonne of carbon dioxide equivalent reduced, avoided, or removed from the atmosphere.
• There are two main carbon markets in the UK: the mandatory UK Emissions Trading Scheme (UK ETS) and the voluntary carbon market.
• The UK ETS operates on a cap-and-trade basis and currently covers energy-intensive industries like power generation, aviation, and maritime.
• Voluntary carbon credits allow any business to offset emissions in line with self-imposed net-zero targets.
• High-quality credits are verified by recognised standards bodies such as Verra, Gold Standard, and the IC-VCM.
• Carbon credits should supplement genuine emission reductions, not replace them.
• For fuel-reliant businesses, carbon credits are a helpful tool to be used while longer-term low-carbon solutions are put in place.

What is a carbon credit?

A carbon credit is a certified unit that represents the reduction, removal, or avoidance of one metric tonne of carbon dioxide (CO₂) – or the equivalent amount of another greenhouse gas – from the atmosphere.

It is a measurable and tradeable way for businesses to support projects that lower overall emissions.

For example, if a renewable energy project such as a wind farm generates clean electricity instead of relying on coal-powered energy, the emissions avoided can be independently measured and verified. Those savings can then be turned into carbon credits, which businesses can purchase to help offset their own carbon emissions.

Carbon credits are commonly used by organisations looking to reduce the environmental impact of operations that still rely on fuel, transport, manufacturing, or other carbon-intensive activities.

You may also hear carbon credits referred to as:

• Carbon offsets
• Carbon allowances
• Emission reduction units
• UK Allowances (UKAs)

While the wording can vary depending on the market or scheme, the principle stays the same: one carbon credit equals one tonne of carbon dioxide equivalent (CO₂e) that has either been prevented from entering the atmosphere or removed from it.

Why use carbon credits?

Businesses use carbon credits to take responsibility for emissions they cannot yet remove from their day-to-day operations.

Rather than seeing carbon credits as a way to simply pay for emissions, they should be used as part of a wider carbon reduction plan. When a business buys verified carbon credits, it helps fund projects that reduce or remove carbon from the atmosphere, such as renewable energy, reforestation, woodland creation, peatland restoration or cleaner technology.

For businesses with unavoidable fuel use, carbon credits can provide a way to support positive environmental action while working towards lower-emission choices over time.

They can also help businesses show customers, suppliers and stakeholders that they are taking steps to understand, manage and reduce their carbon impact, rather than waiting for future rules or pressure to act.

How are carbon credits used in the UK?

In the UK, carbon credits are used in two main ways. In the compliance market, regulated businesses may need to buy or trade credits to meet legal emissions limits. In the voluntary carbon market, businesses buy credits by choice to support their net zero plans, balance harder-to-cut emissions and fund verified climate projects.

The UK Emissions Trading Scheme (UK ETS)

The UK Emissions Trading Scheme is the UK government’s carbon trading system. Introduced in January 2021 after Brexit, it replaced the UK’s participation in the EU Emissions Trading Scheme and is now one of the main ways the country is trying to reach its net-zero targets.

The scheme applies – or will apply – to several high-emission sectors, including:

• Steel, cement, and glass manufacturing
• Power generation
• Aviation
• Maritime transport
• Waste management

How does the UK ETS work?

At its core, the UK ETS works on a “cap and trade” system. The government places a limit – or cap – on the total amount of greenhouse gas emissions allowed across the sectors covered by the scheme. That cap reduces over time as the UK gets closer to its net-zero commitment.

Businesses within the scheme are required to buy UK Allowances (UKAs). Each allowance represents one tonne of CO₂e emissions. At the end of every year, businesses must hold enough allowances to match their actual emissions.

If a company reduces its emissions and ends up with spare allowances, it can sell them on the market. If it exceeds its limit, it must buy additional allowances from other businesses or through government auctions.

Businesses that cut emissions efficiently can benefit financially, while those with higher emissions face rising costs over time. The idea is straightforward: reducing emissions becomes more cost-effective than continually buying extra carbon allowances.

Why does the UK ETS matter?

The UK ETS has already raised billions in auction revenues since launching in 2021, helping fund the UK’s wider transition towards a lower-carbon economy. And the scheme is only reaching more industries, like maritime and waste management.

For businesses that rely heavily on fuel, transport, manufacturing, or energy use, understanding how carbon trading works now can help avoid higher compliance costs and rushed decisions later down the line.

The voluntary carbon market (VCM)

The voluntary carbon market operates outside of government-mandated schemes like the UK ETS. It allows businesses of any size or sector to buy carbon credits voluntarily to support their own net zero goals, sustainability strategies, or ESG (Environmental, Social and Governance) commitments.

As more businesses commit to reducing emissions, the VCM has grown rapidly in recent years, with demand for verified carbon credits continuing to rise.

Unlike the compliance market, the VCM is not controlled by one central regulator. Instead, carbon credits are verified by independent organisations such as:

• Verra (Verified Carbon Standard or VCS)
• Gold Standard
• The Integrity Council for the Voluntary Carbon Market (IC-VCM)

These organisations help ensure carbon offset projects deliver genuine and measurable environmental benefits.

How are carbon credits created?

Carbon credits are created through projects that either reduce greenhouse gas emissions or remove CO₂ from the atmosphere altogether. The project must then measure how much carbon it saves or removes, prove that the results are real, and pass independent verification.

Once approved, those carbon savings are issued as tradeable carbon credits. Businesses can then buy and retire these credits to balance emissions they cannot yet cut directly.

Common types of carbon credit projects include:

• Reforestation and afforestation – Planting trees that absorb CO₂ as they grow
• Forest conservation (REDD+) – Protecting existing forests from deforestation
• Renewable energy projects – Such as wind, solar, and hydroelectric power
• Methane capture – Preventing methane from landfill sites or farms from entering the atmosphere
• Improved cookstove projects – Reducing emissions from wood and charcoal burning
• Direct Air Capture (DAC) – Technology that removes CO₂ directly from the air

Removal credits, which actively remove carbon dioxide from the atmosphere, are generally considered higher quality than avoidance credits, which focus on preventing future emissions.

As net zero strategies evolve, many businesses are placing greater emphasis on high-quality removal credits alongside direct emissions reductions within their own operations.

What is the difference between carbon credits and carbon offsets?

‘Carbon credits’ and ‘carbon offsets’ are often used to describe the same thing, and in most cases, they mean very similar things. However, there is a slight difference between the two.

• A carbon credit is the actual unit or certificate representing one tonne of CO₂e reduced or removed from the atmosphere.
• Carbon offsetting is the process of buying those credits to help compensate for your own business emissions.

For example, if your company buys carbon credits to balance emissions linked to fuel usage, transport, or heating, that is carbon offsetting.

That said, carbon offsetting should not replace efforts to reduce emissions directly within your own operations. A strong net zero strategy should always focus on cutting emissions at the source first – whether that means improving efficiency, switching fuels, or investing in renewable energy – before using carbon credits to offset the emissions that cannot yet be fully removed.

How much do carbon credits cost in the UK?

The cost of carbon credits in the UK can vary widely depending on the market, the type of project, and the quality of the credit itself.

Within the UK ETS, carbon allowance prices are influenced by government policy and market demand. The auction reserve price (the minimum price allowances can be sold for) is £28 per tonne, rising annually with inflation.

In the voluntary carbon market, prices can differ significantly. Higher-quality credits from projects such as Direct Air Capture (DAC) or verified reforestation schemes usually cost more than lower-quality avoidance credits because they deliver stronger long-term environmental benefits.

As more businesses commit to net zero targets and demand for verified carbon credits grows, prices across the voluntary market are expected to rise over time.

For businesses planning their net zero strategy, it is important to look beyond just the price per credit. The quality, credibility, and transparency of the carbon project matter just as much – particularly when carbon credits form part of wider ESG reporting and long-term decarbonisation goals.

How should UK businesses use carbon credits to achieve net zero?

UK businesses should use carbon credits as the final step in a wider net zero plan: measure emissions, cut them as far as possible, then use high-quality credits to address the emissions that cannot yet be removed.

Importantly, this means reducing your own emissions first. Current guidance points businesses towards cutting emissions by at least 90% before using carbon credits to neutralise the remainder. Credits should not be treated as a shortcut, but as a way to support a credible transition while your business reduces its direct impact.

Carbon credits can support a net-zero strategy in three main ways:

• Covering unavoidable emissions while you decarbonise: As your business moves to lower-carbon fuels, better efficiency and cleaner technologies, credits can help account for emissions that cannot yet be fully removed.
• Neutralising residual emissions: Once your business has reduced emissions as far as realistically possible, high-quality removal credits can be used to balance the remaining hard-to-abate emissions.
• Supporting climate action beyond your value chain: Some businesses also invest in carbon projects outside their own operations to back wider environmental work and show long-term commitment.

For larger businesses and hard-to-abate sectors, such as heavy transport, manufacturing and industries still reliant on liquid fuels, carbon credits should sit within a clear, phased plan: reduce first, credit what remains, and keep lowering emissions over time.

Carbon credit schemes recognise that full decarbonisation cannot happen overnight. Instead, it gives businesses time to reduce emissions in a realistic and manageable way, while still ensuring steady, measurable progress towards net zero year after year.

How to buy carbon credits without greenwashing

To buy carbon credits without greenwashing, start by treating them as part of a wider emissions reduction plan, not a shortcut to just looking sustainable.

First, reduce the emissions your business can control. Then, use high-quality carbon credits to support verified projects that reduce or remove emissions elsewhere. This keeps carbon credits in the right role: as a supplement, not a replacement for cutting your own carbon footprint.

When choosing carbon credits, look for:

• Independent verification: Choose credits certified by recognised standards such as the Verified Carbon Standard (VCS), Gold Standard, or projects aligned with the IC-VCM’s Core Carbon Principles.
• Verified impact: The project should only exist because of funding from carbon credit sales, meaning the emissions reductions would not have happened otherwise.
• Long-term carbon savings: The carbon savings should be long-term and not easily reversed, particularly with nature-based projects like reforestation.
• Registered and retired credits: Credits should be properly registered and retired through reputable public registries to ensure they cannot be claimed twice.
• Honest carbon claims: Businesses should avoid overstating the impact of carbon credits and be honest about how they fit into wider emissions reduction plans.

The UK government has introduced integrity principles to improve transparency across the voluntary carbon market. These guidelines encourage businesses to use high-quality verified credits and clearly disclose how they are being used.

How carbon credits help fuel-reliant businesses

If your business relies heavily on commercial fuel for your fleet or operations – fuel usage is likely to make up a major part of your overall carbon footprint.

That does not mean net zero is out of reach. In fact, many fuel-intensive businesses are already taking steps to reduce emissions while using carbon credits to help manage the emissions that cannot yet be fully eliminated.

This might include improving fuel efficiency, upgrading equipment, electrifying parts of a vehicle fleet, or switching to lower-carbon alternatives where able. Carbon credits can then play a supporting role as part of a wider, long-term decarbonisation strategy.

Businesses across the fuel supply chain are also increasingly linking fuel usage with verified carbon credits to strengthen their environmental credentials and meet growing customer and ESG expectations.

Carbon credit FAQs

Are carbon credits the same as carbon offsets?

No, carbon credits and carbon offsets are related, but they are not exactly the same. A carbon credit is the certificate representing one tonne of CO₂e reduced, avoided or removed from the atmosphere. Carbon offsetting is the act of buying and retiring those credits to balance emissions.

How do I know if a carbon credit is legitimate?

A carbon credit is more likely to be legitimate if it is independently verified, traceable and linked to a credible carbon reduction or removal project. Look for credits certified by recognised standards such as the Verified Carbon Standard, Gold Standard, or projects aligned with the IC-VCM’s Core Carbon Principles.

Good-quality carbon credits should also be listed on a public registry, retired after purchase and backed by transparent information about how emissions savings are measured. If a supplier cannot provide verification details, project information or registry records, it is safer to avoid them.

Do I have to participate in the UK ETS?

You only have to participate in the UK Emissions Trading Scheme if your business operates in a sector covered by the scheme. This includes sectors such as power generation, aviation and certain energy-intensive industries, with maritime and waste sectors also being phased in.

If your business is outside these sectors, UK ETS participation is not currently mandatory. However, many businesses still choose to buy voluntary carbon credits to support net zero plans, meet ESG expectations and prepare for future carbon reporting or regulation.