The terms carbon trading and carbon credits are used in debates about global warming everywhere, but not everyone comprehends what these terms mean. In the carbon trading system, industries have to stick to the emission limits of greenhouse gases as fixed by the Kyoto Protocol that governs and allocates these limits across nations to encourage controlled emissions or discourage carbon-centric methods of operating industries.
Governments and industries in many countries are permitted a particular number of carbon credits, providing them with the right to emit a limited amount of carbon dioxide and other greenhouse gases into the atmosphere. One carbon credit amounts to one ton of carbon dioxide released in the environment. This implies companies and industrial units can engage in buying and selling of carbon credits based on their respective levels of emissions, thereby keeping the entire world’s emission rate within prescribed limits.
This system makes corporations pay a huge sum for greenhouse gas emissions that go beyond reasonable limits, and this penalty on them is executed by making purchase of carbon credits compulsory for them. However, this is a reciprocal trade where selling and purchasing of carbon credits are done simultaneously by low and high emission firms. Hence the overall economy does not lose out at all, while organizations with eco- friendly mechanisms make more profits. This motivates organizations to invest in green processes as well and gradually the net greenhouse gases emissions begin going down.
By permitting the carbon credits to be traded freely on exchanges, it can be made sure that irrespective of the size of the organization, eco-friendly processes are always rewarded and can be conveniently monetized. Trade in carbon credits gets instant and substantial advantages for organizations with low emissions. Moreover, the entire idea has also been expanded to countries, there would always be incentives to reduce emissions from the national governments to local companies, which is a great advantage as a lot of governments are often blamed for absence of initiative on environment.
Carbon tax is another alternative that may be implemented, in which organizations causing pollution are punished but environment friendly organizations are not rewarded for low emissions. The efficacy of such schemes is still an issue of debate.
Till now no other scheme has been able to successfully manage the issue of carbon emissions in a better way than carbon trading. The carbon trading market has seen tremendous increase in the past few years, which most people perceive as proof that the system works effectively.
Discover more about carbon credits and carbon offset and get a deeper understanding on how you can help in saving the environment.
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