Carbon credit

 Carbon credits are tradable permits that allow the holder to emit a specific amount of greenhouse gases (GHGs). One credit allows the emission of one ton of carbon dioxide or the equivalent of other greenhouse gases. Carbon credits are also known as carbon allowances. Each credit represents one ton of CO₂e avoided or removed from the atmosphere. The ultimate goal of the carbon credit system is to reduce the emission of GHGs into the atmosphere. Governments or regulatory bodies set an emissions cap, allocate credits to companies, and allow trading. Companies exceeding their cap must purchase additional credits, while those emitting less can sell their surplus.

Mechanism

Carbon credits operate as a market-driven tool to reduce greenhouse gas (GHG) emissions by assigning a financial value to carbon pollution. Carbon credits operate through a systematic lifecycle involving generation, certification, trading and retirement. Below is a brief explanation of the process:

i. Generation: Credits are created by projects that reduce or avoid GHG emissions, such as renewable energy initiatives, reforestation, or carbon capture and storage.

ii. Certification: Independent bodies or governments verify and certify the emission reductions.

iii. Trading: Credits can be bought and sold in carbon markets. Buyers use them to offset their emissions, while sellers gain financial support for their environmental projects.

iv. Retirement: Once used, credits are retired to prevent double-counting.

Benefits

Carbon credits are a crucial tool in the fight against climate change, offering numerous benefits for the environment, economy, and society. They incentivize businesses and governments to reduce greenhouse gas emissions by assigning a monetary value to carbon reductions. Companies that emit less than their allowance can sell surplus credits, while those exceeding limits can purchase credits, promoting cost-effective sustainability. This system encourages investment in renewable energy and energy-efficient technologies, accelerating the transition to low-carbon economies. Additionally, carbon credit projects often provide co-benefits such as job creation and biodiversity protection in local communities. By participating in carbon credit programs, businesses can enhance their reputation and appeal to eco-conscious consumers. Moreover, these credits facilitate international cooperation, allowing countries to trade emissions allowances and support each other in meeting climate commitments. Overall, carbon credits serve as a market-driven solution that balances economic growth with environmental stewardship.