Carbon credit refers to proposed government policy that would seek to reduce carbon dioxide emissions by granting credits

to those who reduce their emissions, and allowing others to purchase carbon credits at market rates rather than make changes or install equipment to reduce their own carbon dioxide emissions.

Expanded Definition
Carbon dioxide is believed to be a greenhouse gas which according to some promotes global warming. Reducing carbon dioxide emissions is thought to be a practical method to slow or stop global warming. The carbon credit idea is based on an earlier successful program to reduce sulfur dioxide emissions. Requiring all emitters to install the best available technology can be costly in some cases, while others can make major reductions without major investment. Sale of carbon credits allows market forces to drive decisions on which changes are most cost-effective in addressing the problem. A similar program to control carbon dioxide emissions in Europe has so far been unsuccessful, in that it was initially set at levels that required little action from industry. It should also be noted that some continue to doubt that global warming is caused by humans. It may still be a natural phenomenon which will not respond to our efforts to institute controls. Carbon dioxide is formed when any carbon-containing material is burned. That includes all fossil fuels as well as wood, paper and plastics. With few exceptions, everything that burns produces carbon dioxide. (Hydrogen is one notable exception.) Fuels are burned for energy. Hence, any energy source that avoids combustion should eliminate carbon dioxide emissions.