Carbon emissions are a lead cause of climate change and global pollution. You may have heard a lot in the media these days about carbon emissions trading, carbon taxes, and carbon credits. Lobby groups and corporations spend millions trying to sway consumers either way, so let’s break it down.

A carbon tax is ”a direct tax on greenhouse gas emissions to encourage companies to curb their emissions and protect the environment,” according to the Financial Times. Typically they are levied on consumption of things like oil, gas, and coal to reflect the “real” cost of using them, and encourage individuals and businesses to over time move towards more sustainable forms of energy. The tax revenue is then typically diverted towards projects on renewable energy, or environmental issues.

A cap-and-trade system is underway right now in the European Union- where an artificial cap has been set on how much emissions can be produced. Allowances are given to different companies via permits, though they can sell them if they don’t reach their pollution quota.

Carbon credits are bought voluntarily by companies and individuals to offset the environmental cost of their actions – which are typically measured by a verified third party and go towards funding projects in alternative energy, developing renewable resources, and other areas. Climate Action sells these kinds of credits to individuals, businesses, and organizations.

A lot of skeptics say that carbon credits, emissions trading, and even taxes are a “license to pollute,” meaning that corporations and individuals can pay their way to environmental absolution. While we understand these kinds of concerns, they’re missing the point.

Climate change poses a threat to the planet in our lifetime. Consider the impact of drought and flood on global food prices (especially in developing countries), the quality of air in cities like Beijing and Tokyo, or melting ice in the Arctic. Investing in  carbon credits won’t magically stop climate change, but it will direct financial resources towards projects that are making incremental  changes for the better.