Carbon credit

Carbon credit

A carbon credit is a permit that allows the holder to emit a certain amount of carbon dioxide or other greenhouse gases. One carbon credit is equal to one ton of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). The goal is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less carbon-intensive approaches than would occur in the absence of such a market.

Mechanism

The mechanism behind carbon credits is based on the principle of cap and trade. Governments or regulatory authorities set a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups are issued emission permits and are required to hold an equivalent number of credits. The total amount of credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emission allowance must buy credits from those who pollute less. The transfer of credits is referred to as a trade. The buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than was needed.

Types of Carbon Credits

There are two main types of carbon credits:

• Voluntary Emission Reductions (VERs): These are carbon credits that are traded on the voluntary market, where companies or individuals purchase them to offset their own emissions.
• Certified Emission Reductions (CERs): These are carbon credits that are traded on the compliance market, which is regulated by international agreements such as the Kyoto Protocol.

Carbon Offset

A carbon offset is a reduction in emissions of carbon dioxide or other greenhouse gases made in order to compensate for emissions made elsewhere. Carbon offsets are measured in metric tons of carbon dioxide-equivalent (CO2e) and may be bought and sold through a number of international brokers, online retailers, and trading platforms.

Marketplaces

Carbon credits can be traded on both compliance and voluntary markets. The compliance market is regulated by mandatory national, regional, or international carbon reduction regimes. The voluntary market, on the other hand, is driven by companies and individuals who voluntarily choose to offset their emissions.

Criticism

The concept of carbon credits has faced criticism. Critics argue that it allows companies to continue polluting while paying for the right to do so, rather than reducing their own emissions. There are also concerns about the effectiveness and integrity of some carbon offset projects, and whether they actually result in real, additional, and permanent emission reductions.

Related Pages

• Carbon footprint
• Kyoto Protocol
• Greenhouse gas
• Climate change
• Emission trading
• Carbon offset