Carbon trading is the buying and selling of the right to emit a tonne of CO2 or equivalent (CO2e). The right to emit a tonne of CO2 is often referred to as a carbon 'credit' or carbon allowances. Carbon markets exist under both mandatory (compliance) schemes and voluntary programs.
Mandatory market is used by companies and governments that are legally mandated to offset their emissions. Voluntary carbon markets (VCMs) comprise buyers (usually corporates) that voluntarily purchase carbon credits generated by projects that avoid or remove greenhouse gas (GHG) emissions to neutralise or compensate for their emissions.