For ages, mankind has been making use of fossil fuels for consumption in all types of endeavours as the main means of energy. However, fossil fuels give out hazardous greenhouse gases like methane and CO2, which cause great damage to the environment. Rising levels of emissions have caused a very high level of accumulation of these gases in the atmosphere, resulting in global warming, which is threatening life on earth.
The carbon credit system was a direct outcome of the need to check emissions and protect the environment. Through the well known Kyoto protocol, an agreement reached by more than 170 countries, it was decided to put limits on emissions of greenhouse gases by every participating nation. The nation’s administration then uses the agreed limits and assigns quotas to manufacturing units, identifying the amount of emissions they are allowed to make.
In order to encourage industries and other entities for releasing lower than the quota and to penalize those who emit more, the concept of carbon credits was brought into the picture. According to its definition, one carbon credit is equivalent to one ton of carbon dioxide emitted in the atmosphere. Under this idea, manufacturing firms have to purchase an exact amount of carbon credits from the global trading market if their emissions are more than the quota, on the other hand those firms that are under their emission quota can sell an equivalent amount of carbon credits.
Such global transactions in carbon credits is aimed at regulating the net amount of emissions of greenhouse gases in the atmosphere by incentivizing lesser emissions by industrial entities. The trading of carbon credits has made companies make good their emissions, and it now has a direct effect on the firm’s financial analysis. Companies have hence woken up to the necessity of reducing their emissions and find environment friendly industrial options.
Another financial instrument called carbon offset credit has also been designed with almost the same purpose in mind. A carbon offset credit is equivalent to one thousand kilograms of carbon dioxide or corresponding greenhouse gas reduction in the atmosphere. The decrease is usually attained by making use of cleaner and more sustainable forms of energy such as tidal and wind energy.
Like carbon credits, a carbon offset is purchased to offset the emissions that go beyond the prescribed limits for a firm so that it is able to comply with the emission regulations. Persons, governments and organizations can all buy it voluntarily as well to offset their carbon footprint. Their purchase helps in financing the reduction of greenhouse gases and supporting eco-friendly methods of energy supply.
Learn more about carbon credits and carbon trading and get a deeper understanding on how you can help in saving the environment.
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