Answer in Brief
Explain concept of carbon credit.
- Carbon credit is a tradable permit scheme. It is a simple, non-compulsory way to counteract the greenhouse gases that contribute to climate change and global warming.
- Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air.
- A carbon credit represents one tonne of carbon dioxide either removed from the atmosphere or saved from being emitted.
1 credit = 1 tonne of CO2
- Carbon credits are certificates awarded to countries that are successful in reducing emissions of greenhouse gases. Carbon credits are generated as the result of an additional carbon project.
- Carbon credits can be created in many ways but there are two broad types:
1. Sequestration (capturing or retaining carbon dioxide from the atmosphere) such as
Afforestation and reforestation activities.
2. Carbon Dioxide Saving Projects such as use of renewable energies The concept of carbon credits came into existence as a result of increasing awareness of the need for controlling emissions. Carbon credits were one of the outcomes of the Kyoto Protocol, an international agreement between 169 countries which created legally binding emission targets for developing nations.
- Carbon credit is type of certificate showing that a government or company has paid to have a certain amount of carbon dioxide removed from the environment”.
- Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). One
carbon credit is equal to one tonne of carbon dioxide, or in some markets, carbon
dioxide equivalent gases. Carbon trading is an application of an emissions trading
approach. Greenhouse gas emissions are capped and then markets are used to
allocate the emissions among the group of regulated sources.
- 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 those used
when there is no cost to emitting carbon dioxide and other GHGs into the
atmosphere. Since GHG mitigation projects generate credits, this approach can be
used to finance carbon reduction schemes between trading partners and around the
- There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint on a voluntary basis. These carbon off setters purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects. Buyers and sellers can also use an exchange platform to trade, such as the Carbon Trade Exchange, which is like a stock exchange for carbon credits. The quality of the credits is based in part on the validation process and sophistication of the fund or development company that acted as the sponsor to the carbon project. This is reflected in their price; voluntary units typically have less value than the units sold through the rigorously validated Clean Development Mechanism.
Concept: Carbon Credit: Introduction and General Concept
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