Carbon credits and offsets are key tools in global efforts to cut greenhouse gas (GHG) emissions and achieve net zero. Knowing how to calculate them is essential for companies, governments, and individuals who want to understand their carbon footprint and offset it effectively.

This guide walks you through the process, explains why accurate accounting matters, and shows you how to measure the credits needed to balance your emissions.

What is a Carbon Credit?

A carbon credit represents one metric tonne of GHG emissions reduced or prevented from entering the atmosphere.

In the voluntary carbon market (VCM), each credit may have a different value depending on:

• Market supply and demand

• Project costs and location

• The project developer’s credibility

For individuals, emissions often come from home energy use, travel, and consumption habits. For businesses, the full value chain plus employee commuting must be considered.

How to Calculate Carbon Credits – The 5 Steps

Step 1: Identify Emission Sources
List all activities that generate GHGs. These are categorized into three scopes:

• Scope 1: Direct emissions from owned/controlled sources

• Scope 2: Indirect emissions from purchased energy

• Scope 3: All other indirect emissions (supply chain, travel, etc.)

Step 2: Measure Activity Data
Collect accurate usage data (e.g., kWh for electricity, liters of fuel, km traveled). Bills, receipts, and invoices are common sources. Use mass or volume measurements for better accuracy.

Step 3: Apply Emission Factors (EF)
Multiply your activity data by the EF for each GHG. EF values are published by organizations like the EPA or IPCC and vary by activity and fuel type.

Formula: activity Data × Emission Factor = Emissions (by GHG)

Step 4: Convert to CO₂ Equivalent (CO₂e)
Since different gases have different warming effects (Global Warming Potential or GWP), convert emissions into CO₂e by multiplying each GHG’s emissions by its GWP.

Example:

• Methane (CH₄) GWP = 25

• Nitrous Oxide (N₂O) GWP = 298

Step 5: Calculate Total Emissions
Add all CO₂e emissions from your sources. This gives your total annual footprint. Multiply by the carbon credit price to determine the offset cost.

Sample Calculation

For a household of 4 in the US using 18 MWh/year of electricity:

1. Emission Factors (per MWh)

   • CO₂: 650.31 lbs

   • CH₄: 0.03112 lbs

   • N₂O: 0.00567 lbs

2. Annual Emissions

   • CO₂: 11,705.58 lbs

   • CH₄: 0.56016 lbs × 25 = 14.00 lbs CO₂e

   • N₂O: 0.10206 lbs × 298 = 30.41 lbs CO₂e

3. Total CO₂e = ~11,750 lbs = 5.33 tonnes

4. Offset Cost (at $15/tCO₂e) = 5.33 × $15 = $79.95

Quality Criteria for Carbon Credits

When buying offsets, look for:

• Additionality: The reduction wouldn’t happen without the credit.

• Permanence: The reduction lasts long-term (>100 years preferred).

• Measurability: The reduction is accurately measured and verified.

Pricing

In regulated markets (e.g., EU ETS), prices are set by policy. In voluntary markets, prices vary based on project type, location, and standards.

Example:

• Wind project credits in India: ~$1.20/t

• Similar project in the US: ~$3.70/t

• Gold Standard credits often cost more due to added social benefits.