The practice of compensating for carbon dioxide emissions by funding projects that reduce, avoid, or remove an equivalent amount of emissions elsewhere.

A tradable good that certifies that a certain amount of GHG emissions was avoided or removed. By buying a carbon credit, a company or individual finances the project reduction or removal project and compensates - or offsets - their own emissions.

A market-based mechanism designed to reduce greenhouse gas emissions. Under this scheme, a cap is set on the total amount of emissions that can be released by covered entities, such as industries or power plants. Emission allowances are issued, each representing the right to emit a specific amount of greenhouse gasses. By creating a market for emission allowances, the ETS incentivizes emission reductions while providing flexibility for businesses to find the most cost-effective ways to comply with emissions targets.