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Carbon Credits - What They Are And How They Help In Decreasing Emissions
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by: HenryScott
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Word Count: 436
Since time immemorial, mankind has been making use of fossil fuels for consumption in all types of endeavours as the primary source of energy. However, release of greenhouse gases like methane and carbon dioxide is caused by fossil fuels, which is very harmful for the environment. The emissions have led to an ever rising concentration of these hazardous gases in the air, leading to global warming, which can be destructive for our planet.
With an aim of reducing the emissions and safeguarding the planet, the idea of carbon credits was brought into existence. More than 170 countries had decided through the Kyoto protocol to set limits on greenhouse gas emissions throughout the world in an agreement four years back. The nations' government then makes use of the prescribed limits and allocates quotas to various manufacturing entities, fixing the cap for emissions by them so that their business activities do not result in excessive emissions.
In order to encourage industries and other organizations for releasing lesser than the quota and to penalize those who emit more, the concept of carbon credits was developed. By definition, one carbon credit is equivalent to one ton of carbon dioxide emitted in the atmosphere. Under the scheme, the entities which release above the limit have to buy an equivalent amount of carbon credits for such emissions from the global trading market and units which are under their allocated emission levels can sell a corresponding amount of carbon credits for the difference between their quota and there emissions.
Global trading of carbon credits focuses on minimization of greenhouse emissions by its 'benefits and punishment' mechanism, and leads to a cleaner environment. The trading of carbon credits has made companies pay for their emissions, and it now has a direct impact on the firm's financial analysis. This has led companies to actively seek ways to decrease their emissions and adopt cleaner methods of doing business.
Another emission limiting financial scheme is the carbon offset credit, which caters to a very similar purpose. One carbon offset represents the reduction of one metric ton of CO2 or an equivalent in other greenhouse gases. The decrease is mostly attained by using cleaner and renewable forms of energy such as solar and wind energy.
Like carbon credits, a carbon offset is purchased to offset the emissions that go above the prescribed limits for a company so that it is able to comply with the emission regulations. Carbon offset is open for governments, companies and even an individual who can offset their carbon footprint through it. Their purchase helps in funding the decrease of greenhouse gases and supporting eco-friendly methods of energy generation.
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