The words carbon credits and carbon trading usually come up in conferences and events on the perils of global warming, but these terms are still alien to a lot of people. In the system of carbon trading, regulations are put on greenhouse gas emissions under the Kyoto Protocol, and the prescribed emission limits are then allocated across nations, which have to regulate the greenhouse gas emissions from the different industries and business units operating within them.
Governments and industrial units in several countries are allowed a particular number of carbon credits, giving them the right to emit a limited amount of carbon dioxide and other greenhouse gases into the atmosphere. One carbon credit is equivalent to the emission of one ton of carbon dioxide. This basically means that high-emission corporations can purchase carbon credits from low-emission entities, thereby maintaining the net global emissions within the prescribed cap.
The key benefit of carbon trading is that it leads to a scenario where companies tending to go beyond their emission allowances have to pay a significant sum to do so, as they have to purchase carbon credits from the market. However, this is a quid pro quo trade where selling and purchasing of carbon credits are done simultaneously by low and high emission companies. Therefore the balance in world economy is maintained, while entities with low emission records make profits. This encourages organizations to invest in green processes as well and gradually the net greenhouse gases emissions begin decreasing.
Free trade of carbon credits on world exchanges enables greener energy and process choices of a company to be incentivised and capitalized, whether the company is a small one or a large one. Trade in carbon credits gets instant and substantial advantages for organizations with low emissions. Moreover, with countries and their administration involved in the idea, national governments on their part would have to ask local industries to reduce emissions, and hence these governments would be pulled out of their conventional stance of indifference towards environmental issues.
However, there are a few people who advocate alternative systems like carbon tax, which rather than incentivising the greener organizations, will penalize those who have extra emissions. There is much speculation over the efficacy of such systems.
In a short span since its adoption, carbon trading has shown to be the most appropriate means to tackle the problem of carbon emissions. The carbon trading business has seen remarkable growth in the past few years, and this proves beyond doubt that the system is impactful.
Discover more about carbon credits and carbon trading and get a deeper understanding on how you can help in saving the environment.
