For companies seeking to reduce their environmental footprints, carbon credits are a popular choice. One credit represents one metric ton of carbon dioxide or other greenhouse gas that has been avoided, reduced or removed from the atmosphere. These can be purchased from a variety of projects, including planting trees, developing renewable energy sources or improving soil management. Some credit markets are regulated, while others operate on a voluntary basis.

With global temperatures rising, limiting the rise to 1.5 degrees Celsius will require a drastic reduction in greenhouse gas emissions from all sources. That’s a big task and will need to be accomplished by both the private sector and governments. Many companies can achieve much of the needed reduction by adopting new technologies, power sources and operating practices, but some will need to purchase carbon credits to offset their own emissions.

To do that, a robust and effective voluntary carbon.credit market is required. That market would help companies to find trustworthy carbon project suppliers, make it easier for them to track and complete the transactions for purchasing the credits they need, and transmit signals of buyer demand, encouraging sellers to increase supplies.

Carbon credit markets are comprised of two major segments: the regulated market, set by government-mandated “cap and trade” programs in countries around the world; and the voluntary market, which is optional and open to any company or individual. Companies that are required to buy credits as part of their compliance with a cap and trade program have to meet strict emission targets each year. If a company emits more carbon than the number of credits it’s allotted, it must pay a fine or sell its excess carbon credits.

Companies that aren’t required to buy carbon credits can do so on a voluntary basis, and those purchases can be used to offset their own emissions or address emissions they may not have been able to eliminate entirely through other means. That includes technology companies, which are looking for ways to become more environmentally friendly while continuing to grow and innovate.

Some of the largest carbon credits are generated by land use and reforestation projects, which utilize Mother Nature’s own carbon sinks — forests and soils — to reduce greenhouse gases in the atmosphere. These projects include restoring and protecting old forests, creating new ones, or improving soil quality and agricultural productivity by increasing carbon in the soil through planting and other practices.

Buying carbon credits can also provide benefits beyond the reduction of greenhouse gases, such as increased biodiversity and improved water quality. This is often referred to as the “co-benefits” of carbon projects. The goal of the voluntary carbon market is to create a more sustainable environment for all, and these types of projects are an important component of that goal. In the future, a more streamlined process could lower issuance costs, shorten payment terms, accelerate credit issuance and cash flow for projects, enable credits to be traced and improve credibility of corporate claims about their environmental performance.