The carbon credit program or the Emission Trading System (ETS)  is the key strategy of Paris Agreement participant countries to take the climate change head-on. We believe this is the only solution that works along with the fundamental principles of a global free-market economy. Rather than just penalising the pollution, this system incentivises the companies to invest more money in sustainability and reduction of pollution. 

The EU ETS is a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. It is the world's first major carbon market and remains the biggest one.

source: ec.europa.eu - Official Website of European Union

One carbon credit is equivalent to one tonne of greenhouse gas. Unlike a carbon tax system, the carbon credit has a limited number every year and the system is designed for deflation. That means every year you have lesser carbon credit compared to the previous year. This makes it a valuable commodity with limited availability. 

In the year 2020, the Netherlands had a quota of 21 million carbon credits. This is auctioned to registered funds & businesses. The companies that need more credits need to buy it at a higher price from the market. This forces some players to invest in the reduction of greenhouse gas emissions than spending money on buying additional carbon credits. However, the companies that saved carbon credits by their sustainable practices will have extra credits which can be floated in the market. Thus sustainable businesses will earn money for their green policies. 

Note: 'Carbon' is an umbrella term used to cover all the greenhouse gas emissions by a business and an individual.