What does Carbon Credit mean
A permit that allows the holder to emit one ton of carbon dioxide. Credits are awarded to countries or groups that have reduced their green house gases below their emission quota. Carbon credits can be traded in the international market at their current market price.
The carbon credit system was ratified in conjunction with the Kyoto Protocol. Its goal is to stop the increase of carbon dioxide emissions.
For example, if an environmentalist group plants enough trees to reduce emissions by one ton, the group will be awarded a credit. If a steel producer has an emissions quota of 10 tons, but is expecting to produce 11 tons, it could purchase this carbon credit from the environmental group. The carbon credit system looks to reduce emissions by having countries honor their emission quotas and offer incentives for being below them.
In step with the dramatic rise in C02 emissions and other pollutants in recent years, a variety of new financial markets have emerged, offering businesses key incentives — aside from taxes and other punitive measures — to slow down overall emissions growth and, ideally, global warming itself.
A key feature of these markets is emissions trading, or cap-and-trade schemes, which allow companies to buy or sell "credits" that collectively bind all participating companies to an overall emissions limit.
While markets operate for specific pollutants such as greenhouse gases and acid rain, by far the biggest emissions market is for carbon. In 2007, the trade market for C02 credits hit $60 billion worldwide — almost double the amount from 2006.
How It Works
Emissions limits and trading rules vary country by country, so each emissions-trading market operates differently. For nations that have signed the Kyoto Protocol, which holds each country to its own C02 limit, greenhouse gas-emissions trading is mandatory. In the United States, which did not sign the environmental agreement, corporate participation is voluntary for emissions schemes such as the Chicago Climate Exchange. Yet a few general principles apply to each type of market.
Under a basic cap-and-trade scheme, if a company’s carbon emissions fall below a set allowance, that company can sell the difference — in the form of credits — to other companies that exceed their limits. Another fast-growing voluntary model is carbon offsets. In this global market, a set of middlemen companies, called offset firms, estimate a company’s emissions and then act as brokers by offering opportunities to invest in carbon-reducing projects around the world.Unlike carbon trading, offsetting isn’t yet government regulated in most countries; it’s up to buyers to verify a project’s environmental worth. In theory, for every ton of C02 emitted, a company can buy certificates attesting that the same amount of greenhouse gas was removed from the atmosphere through renewable energy projects such as tree planting.
A permit that allows the holder to emit one ton of carbon dioxide. Credits are awarded to countries or groups that have reduced their green house gases below their emission quota. Carbon credits can be traded in the international market at their current market price.
The carbon credit system was ratified in conjunction with the Kyoto Protocol. Its goal is to stop the increase of carbon dioxide emissions.
For example, if an environmentalist group plants enough trees to reduce emissions by one ton, the group will be awarded a credit. If a steel producer has an emissions quota of 10 tons, but is expecting to produce 11 tons, it could purchase this carbon credit from the environmental group. The carbon credit system looks to reduce emissions by having countries honor their emission quotas and offer incentives for being below them.
In step with the dramatic rise in C02 emissions and other pollutants in recent years, a variety of new financial markets have emerged, offering businesses key incentives — aside from taxes and other punitive measures — to slow down overall emissions growth and, ideally, global warming itself.
A key feature of these markets is emissions trading, or cap-and-trade schemes, which allow companies to buy or sell "credits" that collectively bind all participating companies to an overall emissions limit.
While markets operate for specific pollutants such as greenhouse gases and acid rain, by far the biggest emissions market is for carbon. In 2007, the trade market for C02 credits hit $60 billion worldwide — almost double the amount from 2006.
How It Works
Emissions limits and trading rules vary country by country, so each emissions-trading market operates differently. For nations that have signed the Kyoto Protocol, which holds each country to its own C02 limit, greenhouse gas-emissions trading is mandatory. In the United States, which did not sign the environmental agreement, corporate participation is voluntary for emissions schemes such as the Chicago Climate Exchange. Yet a few general principles apply to each type of market.
Under a basic cap-and-trade scheme, if a company’s carbon emissions fall below a set allowance, that company can sell the difference — in the form of credits — to other companies that exceed their limits. Another fast-growing voluntary model is carbon offsets. In this global market, a set of middlemen companies, called offset firms, estimate a company’s emissions and then act as brokers by offering opportunities to invest in carbon-reducing projects around the world.Unlike carbon trading, offsetting isn’t yet government regulated in most countries; it’s up to buyers to verify a project’s environmental worth. In theory, for every ton of C02 emitted, a company can buy certificates attesting that the same amount of greenhouse gas was removed from the atmosphere through renewable energy projects such as tree planting.
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