Industrial and individual use of fossil fuels to create energy has been widespread for many decades around the world. However, fossil fuels give out harmful greenhouse gases like methane and carbon dioxide, which result in great harm to the environment. Rising levels of emissions have led to a very high level of accumulation of these gases in the atmosphere, resulting in global warming, which is threatening life on earth.
With the objective of decreasing the emissions and protecting the planet, the concept of carbon credits was brought into existence. Through the famous Kyoto protocol, an agreement reached by over 170 nations, it was decided to set limits on emissions of greenhouse gases by every participating country. The nation\'s administration then uses the agreed limits and prescribes quotas to manufacturing units, identifying the amount of emissions they are permitted to make.
In the carbon credits scheme, the manufacturing units that emit greenhouse gases above the allocated quota are punished while those producing less are rewarded. One thousand kilograms of carbon released in the atmosphere amounts to one carbon credit, by its definition. In this novel scheme, manufacturing units or firms that emit greenhouse gases within the prescribed quota can sell carbon credits of an amount corresponding to the difference, on the other hand those units that emit above the limit will have to purchase an equivalent amount of carbon credits from the market.
Global trading of carbon credits stresses on minimization of greenhouse emissions by its \'reward and penalty\' strategy, and leads to a cleaner environment. The trading of carbon credits has made companies make good their emissions, and it now has a direct impact on the firm\'s financial statement. This has caused firms to actively look for ways to reduce their emissions and opt for greener methods of doing business.
Another financial instrument called carbon offset credit has also been designed with almost the same aim in mind. One carbon offset represents the reduction of one metric ton of CO2 or an equivalent in other greenhouse gases. Using greener and renewable energy sources like wind and solar energy helps to attain this important decrease.
A carbon offset is bought by companies or other organizations to offset the emissions that exceed their allocated quotas as per the defined regulations. Carbon offset is open for governments, organizations and even the common man who can offset their carbon footprint through it. This helps in promoting and financing reduction in emissions and furthering eco-friendly efforts of production of energy.
Discover more about carbon credits and carbon trading and get a deeper understanding on how you can help in saving the environment.
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