If my idea for water rationing were applied to greenhouse gas emissions, the way it would work is that fossil fuel companies would not be permitted to take any coil, oil, or gas out of the ground unless they could pay for the privilege with special credits to do so. The government would ration these credits to the public so as to create a hard limit on total fossil fuel extraction. The current carbon offset system doesn’t have any hard limits as far as I know.
There are caps though. My understanding is that companies get X credits, and they can sell any they don’t need to other companies, and X reduces over time. AFAIK, companies don’t create new credits, they merely trade them on the market as a finite resource.
I assume if you go over your carbon allotment, you pay a hefty fine.
If the government wants less carbon emissions, it reduces the number of credits available on the market or increases to tax credit for unused credits.