Environmental, Social and Governance (ESG) - Principles and Practice · Green Initiatives

Carbon Footprint, Carbon Credits and Net Zero Explained

Updated 11 October 2026 · Fact-checked

A carbon footprint is the total greenhouse gas emissions a company causes, stated in tonnes of CO2 equivalent. A carbon credit represents one tonne of emissions reduced or removed and can be traded. Net zero means cutting emissions as far as possible and balancing only the residual emissions with removals. Answer by measuring, reducing, then offsetting.

Understand Carbon Footprint, Carbon Credits and Net Zero

Every business emits greenhouse gases (GHGs) through fuel burning, purchased electricity, transport and its supply chain. Different gases trap different amounts of heat, so they are converted into one unit: tonnes of carbon dioxide equivalent (tCO2e). The total in this unit is the carbon footprint.

The widely used GHG Protocol splits a footprint into three scopes. Scope 1 covers direct emissions from sources the company owns or controls, such as boilers, furnaces and company vehicles. Scope 2 covers indirect emissions from purchased electricity, steam, heating or cooling. Scope 3 covers all other indirect emissions in the value chain, such as purchased goods, business travel, transport by others and use of sold products.

A basic calculation multiplies activity data by an emission factor: for example, units of electricity used times the emission factor per unit. Add up all sources to get the footprint. Then compare it over time, or per unit of turnover, to see progress. This ratio is called emission intensity.

A carbon credit is a tradable certificate representing one tonne of CO2e reduced, avoided or removed, issued under a recognised scheme after verification. A company that buys and retires a credit uses it to offset an equal amount of its own emissions. In everyday use, the credit is the instrument and the offset is the act of using it to compensate. Sources also use the two words loosely, so define them when you write.

India has a framework for a domestic Carbon Credit Trading Scheme under the Energy Conservation Act, 2001, as amended in 2022. It has two parts: a compliance mechanism, where notified entities have emission or intensity targets and receive or need to buy credits, and an offset mechanism for voluntary projects. Check the latest notifications before you quote details.

Net zero means reducing emissions as deeply as possible across the value chain and neutralising only the small residual with permanent removals. It is stricter than buying credits to cancel a large footprint. India has announced a national net zero goal for 2070.

Key rules to remember

Carbon footprint of one activity: Emissions (tCO2e) = Activity data × Emission factor; Use matching units, for example kWh of electricity × tCO2e per kWh.
Total corporate footprint: Total = Scope 1 + Scope 2 + Scope 3; Scope 3 is often the largest and the hardest to measure.
Emission intensity: Intensity = Total emissions (tCO2e) ÷ Output or turnover; Allows comparison when the business grows.
Net emissions after offsets: Net emissions = Gross emissions − Credits retired; Net zero requires net emissions of zero after deep cuts, with credits used only for the residual.
Percentage reduction: Reduction % = (Base year − Current year) ÷ Base year × 100; Targets are set against a stated base year.
Credit unit: 1 carbon credit = 1 tonne CO2e reduced or removed; Applies to the standard unit; check the scheme's rules.

How to solve Carbon Footprint, Carbon Credits and Net Zero questions

Use this order for a theory or case question on carbon footprint, credits or net zero.

1Define the key term in one line, using tCO2e and the scopes where relevant.
2Identify what the question asks: measure, reduce, trade, offset or target-setting.
3If numbers are given, classify each source into Scope 1, 2 or 3 before adding.
4Apply the formula with matching units and show each line of working.
5Apply the hierarchy: avoid and reduce first, then switch to renewables, then offset the residual.
6Link to law or reporting, such as the Energy Conservation Act framework, BRSR emission disclosures or board oversight.
7Conclude with a clear recommendation or finding for the company.
8State assumptions, such as the emission factors used.

Quickest way: Scope, calculate, hierarchy

When to use it: Use when time is short and the question has a short case or numbers.

Write the three scopes in one line each.
Tag every source in the facts with its scope.
Multiply and add, converting units to tonnes.
Write one sentence on reduce first, offset last.
Close with the board or Company Secretary action.

Common mistakes in Carbon Footprint, Carbon Credits and Net Zero

Putting purchased electricity under Scope 1.
Students link electricity to the company's own premises.
Fix: Electricity bought from a utility is Scope 2. Scope 1 is only direct emissions from owned or controlled sources.
Mixing kg and tonnes.
Emission factors are often given per kg or per kWh.
Fix: Convert to tonnes at the end: 1 tonne = 1,000 kg.
Treating carbon credits as proof of net zero.
Offsetting sounds like cancelling emissions.
Fix: Net zero needs deep cuts first. Credits cover only residual emissions.
Ignoring Scope 3 in a value chain discussion.
It is harder to measure and is less visible.
Fix: Mention it and say it is often the largest part of the footprint.
Stating details of the Indian trading scheme from memory without hedging.
Notified targets and rules change.
Fix: Describe the two mechanisms, name the Energy Conservation Act, and avoid specific numbers you are not sure of.
Stopping at the number without a conclusion.
Students treat it like a pure sums question.
Fix: Always add what the company should do next, as the paper is case-based.

Worked examples

Example 1

Verde Textiles Ltd, Coimbatore, burned 40,000 litres of diesel in its own boilers (2.7 kg CO2e per litre) and bought 5,00,000 kWh of grid electricity (0.8 kg CO2e per kWh). Calculate Scope 1, Scope 2 and the total in tonnes.

Show the solution

Scope 1: 40,000 × 2.7 = 1,08,000 kg CO2e.
Convert to tonnes: 1,08,000 ÷ 1,000 = 108 tCO2e.
Scope 2: 5,00,000 × 0.8 = 4,00,000 kg CO2e.
Convert to tonnes: 4,00,000 ÷ 1,000 = 400 tCO2e.
Total of Scope 1 and 2 = 108 + 400 = 508 tCO2e.

Answer: Scope 1 is 108 tCO2e, Scope 2 is 400 tCO2e and the combined total is 508 tCO2e, excluding Scope 3.

Example 2

Surya Steel Ltd had emissions of 2,000 tCO2e in its base year. This year it emitted 1,500 tCO2e after efficiency measures and plans to retire 100 credits for part of the remainder. Calculate the percentage reduction and net emissions, and say whether it has achieved net zero.

Show the solution

Reduction = 2,000 − 1,500 = 500 tCO2e.
Percentage reduction = 500 ÷ 2,000 × 100 = 25%.
Net emissions = 1,500 − 100 = 1,400 tCO2e.
Net emissions are not zero, so net zero is not achieved.
Advise further cuts, such as renewable power, and offset only the small residual later.

Answer: The reduction is 25%, net emissions are 1,400 tCO2e, and the company has not achieved net zero.

Exam tips

Always draw or list the three scopes with one example each; examiners look for correct classification.
Show unit conversions line by line, as working earns marks.
For difference questions, use two columns of points: what it is, who issues it, and how it is used.
In case answers, link the topic to board oversight, BRSR disclosure and the Company Secretary's role.
Say that offsets come last in the hierarchy when discussing net zero claims.

Practice questions from Green Initiatives

Carbon Footprint, Carbon Credits and Net Zero: frequently asked questions

What is the difference between a carbon credit and a carbon offset?

A carbon credit is the tradable certificate for one tonne of CO2e reduced or removed. An offset is the use of that credit to compensate for your own emissions. People often use the words interchangeably, so define them in your answer.

How do you calculate the carbon footprint of a company?

List every emission source, find the activity data, and multiply by the right emission factor. Group results into Scope 1, 2 and 3, convert to tonnes, and add them up.

What is the Carbon Credit Trading Scheme in India?

It is a framework created under the Energy Conservation Act, 2001, as amended in 2022. It has a compliance mechanism for notified entities and an offset mechanism for voluntary projects. Check current notifications for the targets and details.

Is net zero the same as carbon neutral?

No. Net zero stresses deep emission cuts across the value chain, with only residual emissions neutralised by removals. Carbon neutral can be reached mainly by buying offsets.