A carbon credit is a tradable certificate representing one metric tonne of carbon dioxide equivalent that was either removed from the atmosphere or prevented from being emitted. A project generates credits by demonstrating — under a standard, verified by a third party — that its activity reduced emissions beyond what would have happened anyway. A buyer purchases credits and retires them, claiming the reduction against its own footprint. The GHG Protocol is the accounting framework that defines the footprint in the first place.
The GHG Protocol tells a company how to count its emissions. The credit market sells instruments companies use against that count. Confusion between the ledger and the instruments is where most of the trouble — honest and otherwise — begins.
What Is the GHG Protocol and What Does It Count?
The GHG Protocol is the most widely used international standard for measuring and reporting greenhouse gas emissions, developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). Its Corporate Standard sorts a company’s emissions into three scopes: direct emissions from sources it owns or controls, indirect emissions from the energy it purchases, and all other indirect emissions across its value chain, upstream and downstream.
The scopes, translated:
Scope 1 is what you burn yourself: fuel in your furnaces, your fleet’s diesel, refrigerant leaks from your equipment. If the emission leaves a stack, tailpipe, or valve you control, it is Scope 1.
Scope 2 is the energy you buy: electricity, steam, heating, cooling generated by someone else. The emissions happen at the power plant, but the protocol assigns them to you because your demand caused them.
Scope 3 is everything else in the value chain: emissions embedded in purchased goods, business travel, employee commuting, product transport, and what happens to products after sale. For most companies Scope 3 is the largest category and the hardest to measure, because it depends on data from suppliers who may not measure it themselves.
The protocol’s contribution is comparability: two companies using it produce inventories built on the same definitions, which is what makes reporting, targets, and — eventually — credit purchases meaningful. A footprint figure with no stated methodology behind it is a marketing number. A footprint built on the Corporate Standard is an account that can be audited.
How Does a Carbon Credit Get Created and Retired?
A carbon credit is created when a project developer carries out an emissions-reduction activity — protecting a forest at risk of clearing, capturing methane from a landfill, distributing cleaner cookstoves — and has the reduction quantified and verified under a carbon standard, after which a registry issues credits with unique serial numbers into the developer’s account. Credits move between accounts as they are sold, and a credit’s environmental claim is consumed when a buyer retires it in the registry, permanently, in their own name.
Three mechanisms in that chain carry the integrity of the whole market:
Additionality. The reduction must be additional — it would not have happened without the credit revenue. A forest nobody intended to cut, a renewable plant that was already profitable: reductions there may be real in a physical sense but were not caused by the credit, so selling them lets a buyer claim progress that the purchase did not create.
Verification and the registry. Independent auditors check projects against the issuing standard’s methodology, and registries track each credit’s serial number to prevent double-selling. The registry is the market’s land title office: if a tonne appears in two accounts, the market has failed at its most basic job.
Retirement. A purchased credit sitting in an account is an asset, not a claim. Only retirement — permanent removal from circulation, recorded publicly — converts it into the buyer’s offset claim. Credits resold onward carry their claim with them; retired credits are spent and gone.
Where Do the Scams Live?
The scams in carbon markets live in the gap between the claim and the atmosphere: credits issued for reductions that never happened or would have happened anyway, credits counted twice, and credits marketed to buyers who do not understand — or prefer not to understand — what they purchased. Investigative reporting and academic reviews have repeatedly found categories of credits, particularly some older forestry credits, that likely represented little real reduction.
The recurring failure patterns, stated factually:
Phantom reductions. Baseline inflation is the classic: a project claims it prevented emissions against a hypothetical scenario — deforestation that was asserted but implausible — and is credited for the difference. The credits are real certificates backed by an imaginary counterfactual.
Double counting. The same reduction claimed by the project developer, the host country toward its national targets, and the purchasing company toward its own. Standards and registries exist largely to prevent this; it persists at the seams between systems.
Permanence failure. A forest credit represents carbon stored in trees. Trees burn. If the stored carbon returns to the atmosphere in a wildfire twenty years later and no buffer or insurance mechanism replaces it, the buyer’s claim evaporated with the forest.
Retail fog. At the consumer end, credits and offsets are marketed with language — “carbon neutral flight,” “net-zero product” — that implies a precision the underlying instruments do not have. Regulators have begun treating unsupported neutrality claims as a consumer-protection issue, which moves this category from embarrassment risk to legal risk.
The proportionate response for a buyer is not to abandon the market but to buy like an auditor: favor credits with conservative baselines, strong registries, buffer pools against reversal, and transparent project documentation — and make public claims that match what the instruments can actually support. Count honestly under the GHG Protocol, reduce what you can directly, and let credits carry only the weight they can bear.