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Carbon Credits Glossary: Key terms in Carbon Markets explained

From nature-based solutions to additionality, bring clarity to your climate conversations with jargon-busting definitions for the most used environmental phrases.

A key issue for many stakeholders navigating carbon markets is the proliferation of jargon, buzzwords and acronyms, creating barriers to effective participation and decision-making. This glossary is designed to make those terms easier to understand, with clear definitions to help you navigate the topic with greater confidence.

Carbon market basics

Project categories and pathways

Quality and integrity in carbon markets

International frameworks and policy

Standards and organisations

Core concepts that explain how carbon markets work.

Avoid – Reduce – Compensate / mitigation hierarchy

The mitigation hierarchy is a framework for prioritising climate action. It encourages organisations to avoid emissions where possible, reduce emissions that cannot be avoided, and only then compensate for residual emissions using credible mitigation measures.

Avoid: Stop emissions from happening in the first place, for example by changing a process or choosing a lower-carbon option.
Reduce: Cut emissions from activities that still need to happen, such as through efficiency improvements, operational changes or cleaner technologies.
Compensate: Address residual emissions by supporting verified projects that reduce or remove greenhouse gases elsewhere.¹

Cap-and-trade

Cap-and-trade is a form of emissions trading that limits the total amount of greenhouse gas emissions allowed within a system. It works through two linked elements:

A cap that sets the total emissions limit
Tradeable allowances that participants can buy, sell or keep for later use

If an organisation emits less than its limit, it may be able to keep or sell its spare allowances. If it emits more, it must buy additional allowances. This creates flexibility for participants while keeping total emissions within the overall cap.²

Carbon credits

A carbon credit is a tradable unit that represents one metric tonne of greenhouse gas emissions reduced, avoided or removed, expressed as carbon dioxide equivalent (CO₂e). Credits are typically issued only after the claimed impact has been measured and verified under an approved methodology. Each credit is typically assigned a unique serial number and recorded in a registry, helping to track ownership and use over time.³

Carbon markets

Carbon markets are systems that allow governments and non-state actors to trade carbon credits and other greenhouse gas emission instruments. Their purpose is to support climate action by creating a mechanism to price emissions and channel finance towards emissions reductions.⁴

Carbon offsets

Carbon offsets are a broad term often used to describe the use of carbon credits or other mitigation instruments to compensate for greenhouse gas emissions. In practice, a carbon credit is the tradable unit itself, while offsetting is the act of using that unit to counterbalance emissions. The term is often used interchangeably with carbon compensation, although definitions can vary by context.⁵

Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)

CORSIA is a global market-based scheme developed by the International Civil Aviation Organization to address emissions from international aviation. It complements other measures to reduce international aviation emissions. Under CORSIA, eligible operators use CORSIA-eligible emissions units (CEEUs) to meet offsetting requirements, while CORSIA-eligible fuels can help reduce those requirements.⁶

For more information about Shell’s CORSIA offerings, visit: Insights to CORSIA: Market trends and strategies for airlines | Shell Global

Carbon pricing

Carbon pricing puts a financial cost on greenhouse gas emissions, often by assigning a price to CO₂. The aim is to encourage lower-carbon choices by making emissions more visible in economic decision-making. Different types of carbon pricing include carbon taxes and emissions trading systems (ETS) such as cap-and-trade.⁷

Carbon tax

A carbon tax is a government levy on greenhouse gas emissions, usually linked to the carbon content of fossil fuels. It is designed to discourage high-emission activity by increasing its cost.⁸

Compliance markets

Compliance markets are regulated carbon trading systems in which organisations must meet emissions limits set by law or regulation. Participants typically buy, sell or surrender allowances, and in some systems may also be able to use eligible credits, to comply with legal obligations. Unlike voluntary carbon markets, participation is driven by regulation rather than a self-directed climate claim or target.⁹

Credit retirement

Credit retirement is the permanent removal of a carbon credit from circulation so it cannot be traded or used again. Retirement is what allows the underlying emissions reduction or removal to be claimed without double counting.¹⁰

Credit vintage

Credit vintage is the year in which the emissions reduction or removal linked to a carbon credit took place. It can help indicate when the underlying activity happened and, in some cases, the standards that applied at the time.¹¹

EU Emissions Trading System (EU ETS)

The EU ETS is the European Union’s emissions trading system and one of the best-known examples of cap-and-trade. Launched in 2005, it was the world’s first major carbon market and is designed to help reduce emissions across the EU.¹²

Voluntary carbon markets

Voluntary carbon markets allow companies, cities and other non-state actors to buy carbon credits without being legally required to do so. They sit outside mandatory compliance systems and are often used by organisations as part of broader climate strategies, including support for emissions mitigation beyond their value chain and, in some cases, the compensation of residual emissions.¹³

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Insights into voluntary carbon market trends

The voluntary carbon market (VCM) is increasingly used by companies as part of broader climate and emissions-management strategies. This research whitepaper explores what drives demand, how businesses choose and procure carbon credits, and why credibility and impact are critical to building effective carbon credit strategies.

Click to download the whitepaper

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Ready to explore how carbon credits may support your broader climate strategy?

Get in touch with our experts to discuss procuring carbon credits and navigating the voluntary carbon market.

Contact our team

Disclaimers

_{Carbon credits are not a substitute for switching to low-emission energy solutions or reducing the use of fossil fuels. Shell encourages their customers to focus first on emissions that can be avoided or reduced and only then compensate for the remaining emissions through the purchase and retirement of voluntary carbon credits.}

_{Definitions in this glossary are intended for general informational purposes only. Terminology may be defined differently by regulators, standards bodies, carbon crediting programmes and market participants. Readers should consult relevant laws, regulations and programme rules where applicable.}

¹_{IETA 101 Mitigation Hierarchy}

, IETA, September 2023
²_{Cap and Trade Programme, UNFCCC, N.D.}³_{Core Carbon Principles Section 5 Version 2 (PDF) (PDF), ICVCM, 6 February 2024}⁴_{Carbon Markets, United Nations Environment Programme, N.D.}⁵_{United Nations Carbon Offset Platform, UNFCCC, N.D.}⁶_{Carbon Offsetting and Reduction Scheme for International Aviation, International Civil Aviation Organization, N.D.}⁷_{What is Carbon Pricing?, World Bank, N.D.}⁸_{What is Carbon Pricing?, World Bank, N.D.}⁹_{Carbon Markets, United Nations Environment Programme, N.D.}¹⁰_{Offset Lifecycle, Carbon Knowledge Hub, 2024}¹¹_{Carbon Credit Quality: Does Vintage Matter?, Carbon Growth Partners, 2024}¹²_{What is the EU ETS?, European Commission, N.D.}¹³_{Carbon Markets, United Nations Environment Programme, N.D.}¹⁴_{Project Protocol, GHG Protocol, N.D.}¹⁵_{Project Protocol, GHG Protocol, N.D.}¹⁶_{AR6 WGIII Factsheet: Carbon Dioxide Removal (PDF) (PDF), Intergovernmental Panel on Climate Change, N.D.}¹⁷_{Carbon Capture, Utilisation and Storage, International Energy Agency, N.D.}¹⁸_{Direct Air Capture, International Energy Agency, N.D.}¹⁹_{Nature Based Solutions, International Union for Conservation of Nature, N.D.}²⁰_{United Nations Environment Assembly Agrees on Nature Based Solutions Definition, Nature Based Solutions Initiative, 2022}²¹_{Good Practice Guidance for Land Use (PDF) (PDF), Land Use Change and Forestry, Intergovernmental Panel on Climate Change, N.D.}²²_{What is REDD+?, UNFCCC, N.D.}²³_{The Core Carbon Principles, ICVCM, N.D.}²⁴_{What is a Baseline?, Greenhouse Gas Management Institute, 2022}²⁵_{The Assessment of Co Benefits in IPCC’s Sixth Assessment Report, (PDF) (PDF) Intergovernmental Panel on Climate Change, 2025}²⁶ _{Leakage, United Nations Collaborative Programme on Reducing Emissions from Deforestation and Forest Degradation, N.D.}²⁷_{Clean Development Mechanism Methodology Booklet (PDF) (PDF), UNFCCC, 2022}²⁸_{Climate Explainer: MRV, World Bank Group, 2022}²⁹_{Climate Change and Land, Intergovernmental Panel on Climate Change, 2019}³⁰_{What Are Safeguards and Why They Matter for Your Carbon Credits, Calyx Global, 2023}³¹_{Article 6 of the Paris Agreement, UNFCCC, N.D.}³²_{Article 6.2, UNFCCC, N.D.}³³_{Paris Agreement Crediting Mechanism, UNFCCC, N.D.}³⁴_{Managing the Risk of Corresponding Adjustment, World Bank Group, 2021}³⁵_{Unlocking Climate Ambition: The Significance of Article 6 at COP28, United Nations Framework Convention on Climate Change, 2023}³⁶_{The Core Carbon Principles, ICVCM, N.D.}³⁷_{Who We Are and What Drives Us, Gold Standard, N.D.}³⁸_{Leading the Way to a High Integrity Voluntary Carbon Market, ICVCM, N.D.}³⁹_{Homepage, IETA, N.D.}⁴⁰_{About Us,Science Based Targets Initiative, N.D.}⁴¹_{Verified Carbon Standard, Verra, N.D.}⁴²_{VCMI Claims Code of Practice, Voluntary Carbon Markets Integrity Initiative, 28 November, year not specified}

Disclaimer

Cautionary Note

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Shell’s net carbon intensity and net-zero emissions target

In this content we may refer to Shell’s “net carbon intensity” (NCI), which includes Shell’s carbon emissions from the production of our energy products, our suppliers’ carbon emissions in supplying energy for that production and our customers’ carbon emissions associated with their use of the energy products we sell. Shell’s NCI also includes the emissions associated with the production and use of energy products produced by others which Shell purchases for resale. Shell only controls its own emissions. The use of the terms Shell’s “net carbon intensity” or NCI is for convenience only and not intended to suggest these emissions are those of Shell plc or its subsidiaries.

Shell’s operating plan and outlook are forecasted for a three-year period and ten-year period, respectively, and are updated every year. They reflect the current economic environment and what we can reasonably expect to see over the next three and ten years. Accordingly, the outlook reflects our combined Scope 1 and 2 target, NCI target and our oil products ambition over the next ten years. However, Shell’s operating plan and outlook cannot reflect our 2050 net-zero emissions target, as this target is outside our planning period. Such future operating plans and outlooks could include changes to our portfolio, efficiency improvements and the use of carbon capture and storage and carbon credits. In the future, as society moves towards net-zero emissions, we expect Shell’s operating plans and outlooks to reflect this movement. However, if society is not net zero in 2050, as of today, there would be significant risk that Shell may not meet this target.

The information provided above regarding Shell’s NCI and net zero emissions target are not intended, nor should they be construed as introducing, suggesting or making any claim, target or representation thereof other than what is included in the content.

Forward-Looking non-GAAP measures

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