Understanding Carbon Credit Allowances

Understanding Carbon Credit Allowances

Understanding Carbon Credit Allowances

Carbon credit allowances are a key component in the fight against climate change. They are part of a cap-and-trade system designed to reduce greenhouse gas emissions by setting a limit on emissions and allowing the trading of emission units, which are known as carbon credits. One carbon credit is equivalent to one ton of carbon dioxide or the mass of another greenhouse gas with a similar global warming potential1.

How Carbon Credit Allowances Work

In a cap-and-trade system, a governing body sets a cap on the total amount of greenhouse gases that can be emitted by all covered entities. This cap is typically reduced over time to encourage a gradual reduction in overall emissions. Entities that emit greenhouse gases must hold sufficient allowances to cover their emissions, and they can obtain these allowances through initial allocation, auction, or trading with other entities.

Entities Issuing Carbon Credit Allowances in North America

In North America, several entities are responsible for issuing carbon credit allowances:

  • California Air Resources Board (CARB): CARB oversees California’s cap-and-trade program, which is one of the largest in the world. It issues allowances that can be traded within California and with linked programs4.
  • Regional Greenhouse Gas Initiative (RGGI): RGGI is a cooperative effort among Eastern states to cap and reduce CO2 emissions from the power sector. It provides allowances through auctions2.
  • Quebec’s Cap-and-Trade System: Quebec has linked its cap-and-trade system with California’s, forming a large carbon market in North America. The government of Quebec issues offset credits4.

Additionally, there are voluntary standards and registries such as Verra, the Climate Action Reserve, the American Carbon Registry, and Gold Standard that develop and certify projects for carbon credits used in quasi-compliance markets like CORSIA and Emission Trading Schemes1.


Carbon credit allowances are an essential tool for managing greenhouse gas emissions and incentivizing the reduction of carbon footprints. The entities mentioned above play a pivotal role in the North American carbon market, providing the framework for a sustainable future.

For more information on these entities and their programs, you can visit their respective websites:

By understanding and participating in carbon credit allowance systems, businesses and individuals can contribute to the global effort to mitigate climate change and move towards a greener economy.