Carbon credits and carbon trading are common topics for debates and conventions on environmental matters, but most of us are not fully acquainted with these concepts. In the carbon trading system, industries have to adhere to the emission caps of greenhouse gases as set by the Kyoto Protocol that governs and allots these limits across nations to encourage controlled emissions or discourage carbon-centric methods of running industries.
Governments and industries in many countries are permitted a certain number of carbon credits, giving them the right to emit a restricted amount of carbon dioxide and other greenhouse gases into the air. One carbon credit is equal to one thousand kilos of carbon dioxide emissions. This means that low-emission industries can sell carbon credits to high-emission corporations, thereby creating a cap on the greenhouse gas emissions in the world.
The key benefit of carbon trading is that it leads to a scenario where organizations tending to go beyond their emission limits have to pay a substantial amount 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 firms. Therefore, the world economy remains balanced, while companies least polluting the environment profit financially. This makes organizations move away from the carbon centric methods of manufacturing, and so the emission levels fall.
By permitting the carbon credits to be traded freely on global exchanges, it can be ensured that regardless of the size of the company, greener operational methods are always rewarded and can be conveniently monetized. This trading strategy ensures immediate and great rewards for organizations with a low emission record. Moreover, with countries and their administration engaged with the idea, national governments on their part would have to ask local industries to decrease emissions, and hence these governments would be taken away from their conventional stance of indifference towards environmental issues.
However, there are some people who advocate other systems like carbon tax, which rather than incentivising the greener companies, will penalize those who have extra emissions. The success of such systems is highly debatable and issue of contention in several discussions.
Till now no other scheme has been able to successfully handle the issue of carbon emissions better than carbon trading. The carbon trading market has seen huge growth in the past few years, which a lot of people perceive as evidence that the system works quite well.
Learn more about carbon credits and carbon trading and get a deeper understanding on how you can help in saving the environment.