Pleasant Ranch

The words carbon credits and carbon trading usually come up in seminars and events on the dangers of global warming, but these concepts are still unfamiliar to most people. In the carbon trading system, industries have to stick to the emission caps of greenhouse gases as set by the Kyoto Protocol that governs and allocates these limits across nations to encourage regulated emissions or discourage carbon-intensive methods of running industries.

National governments and industries are allotted limited number of carbon credits to set a cap on their emission levels, and the credits permit the owner to release a restricted amount of CO2 and other gases into the environment. One carbon credit is equal to one thousand kilos of carbon dioxide discharge. This implies that low-emission industrial units can sell carbon credits to high-emission corporations, thereby creating a cap on the greenhouse gas emissions in the atmosphere.

This system requires that corporations pay a huge sum for greenhouse gas emissions that go beyond reasonable limits, and this penalty on them is implemented by making purchase of carbon credits compulsory for them. However, for every business that is purchasing credits, there will be a firm which is selling these credits. Hence the balance in global economy is sustained, while organizations with low emission records earn profits. This makes companies shift away from the carbon centric methods of manufacturing, and so the emission levels fall.

Free trade of carbon credits on stock exchanges enables greener energy and process choices of an organization to be incentivised and capitalized, whether the company is a small one or a large one. This trading strategy ensures instant and substantial rewards for companies with a low emission record. Moreover, as the whole concept has also been expanded to countries, there would always be encouragement to reduce emissions from the respective governments to local businesses, which is a huge benefit as many governments are usually blamed for absence of initiative on environment.

Carbon tax is another alternative that may be implemented, in which companies causing pollution are penalized but environment friendly industries are not rewarded for low emissions. The success of such systems is highly debatable and issue of contention in several discussions.

In a short span since its inception, carbon trading has proven to be the best method to tackle the issue of carbon emissions. The effectiveness of the system is evident from the unprecedented increase in the carbon trading market witnessed in the last few years.

Discover more about carbon credits and carbon offset and get a deeper understanding on how you can help in saving the environment.