What is carbon credit?
As nations have progressed we have been emitting carbon, or gases which result in warming of the globe. Some decades ago a debate started on how to reduce the emission of harmful gases that contributes to the greenhouse effect that causes global warming. So, countries came together and signed an agreement named the Kyoto Protocol.
The Kyoto Protocol has created a mechanism under which countries that have been emitting more carbon and other gases (greenhouse gases include ozone, carbon dioxide, methane, nitrous oxide and even water vapour) have voluntarily decided that they will bring down the level of carbon they are emitting to the levels of early 1990s.
Developed countries, mostly European, had said that they will bring down the level in the period from 2008 to 2012. In 2008, these developed countries have decided on different norms to bring down the level of emission fixed for their companies and factories.
A company has two ways to reduce emissions. One, it can reduce the GHG (greenhouse gases) by adopting new technology or improving upon the existing technology to attain the new norms for emission of gases. Or it can tie up with developing nations and help them set up new technology that is eco-friendly, thereby helping developing country or its companies 'earn' credits.
India, China and some other Asian countries have the advantage because they are developing countries. Any company, factories or farm owner in India can get linked to United Nations Framework Convention on Climate Change and know the 'standard' level of carbon emission allowed for its outfit or activity. The extent to which I am emitting less carbon (as per standard fixed by UNFCCC) I get credited in a developing country. This is called carbon credit.
These credits are bought over by the companies of developed countries -- mostly Europeans -- because the United States has not signed the Kyoto Protocol.
As nations have progressed we have been emitting carbon, or gases which result in warming of the globe. Some decades ago a debate started on how to reduce the emission of harmful gases that contributes to the greenhouse effect that causes global warming. So, countries came together and signed an agreement named the Kyoto Protocol.
The Kyoto Protocol has created a mechanism under which countries that have been emitting more carbon and other gases (greenhouse gases include ozone, carbon dioxide, methane, nitrous oxide and even water vapour) have voluntarily decided that they will bring down the level of carbon they are emitting to the levels of early 1990s.
Developed countries, mostly European, had said that they will bring down the level in the period from 2008 to 2012. In 2008, these developed countries have decided on different norms to bring down the level of emission fixed for their companies and factories.
A company has two ways to reduce emissions. One, it can reduce the GHG (greenhouse gases) by adopting new technology or improving upon the existing technology to attain the new norms for emission of gases. Or it can tie up with developing nations and help them set up new technology that is eco-friendly, thereby helping developing country or its companies 'earn' credits.
India, China and some other Asian countries have the advantage because they are developing countries. Any company, factories or farm owner in India can get linked to United Nations Framework Convention on Climate Change and know the 'standard' level of carbon emission allowed for its outfit or activity. The extent to which I am emitting less carbon (as per standard fixed by UNFCCC) I get credited in a developing country. This is called carbon credit.
These credits are bought over by the companies of developed countries -- mostly Europeans -- because the United States has not signed the Kyoto Protocol.
Kyoto & Post-Kyoto Trading
Emission’s trading gives companies the flexibility to meet emission targets according to their own strategy, thus offering the most cost effective way for energy-intensive industries to meet their obligation to reduce emissions. To implement the Kyoto Protocol, the European Union (EU) and other countries have set up “cap and trade” systems. Under these systems, companies are obliged to match their greenhouse gas emissions with equal volumes of emission allowances.
The Government initially allocates a number of allowances to each company called European Union Allowances (EUAs). Each EUA permits the holder to emit one tonne of CO2. Any company that exceeds its emissions beyond its allocated EUAs will either have to buy EUAs (in the form of carbon credits) or pay penalties in accordance with the Kyoto Protocol. A company that emits less than expected can sell its surplus EUAs to those with shortfalls. Companies or countries will buy these EUAs as long as the price is lower than the cost of achieving emission reductions by themselves.
Emission’s trading gives companies the flexibility to meet emission targets according to their own strategy, thus offering the most cost effective way for energy-intensive industries to meet their obligation to reduce emissions. To implement the Kyoto Protocol, the European Union (EU) and other countries have set up “cap and trade” systems. Under these systems, companies are obliged to match their greenhouse gas emissions with equal volumes of emission allowances.
The Government initially allocates a number of allowances to each company called European Union Allowances (EUAs). Each EUA permits the holder to emit one tonne of CO2. Any company that exceeds its emissions beyond its allocated EUAs will either have to buy EUAs (in the form of carbon credits) or pay penalties in accordance with the Kyoto Protocol. A company that emits less than expected can sell its surplus EUAs to those with shortfalls. Companies or countries will buy these EUAs as long as the price is lower than the cost of achieving emission reductions by themselves.
The concept of carbon credit trading was developed as a result of the Kyoto Protocol ratification and seeks to encourage countries to reduce their GHG emissions. It rewards those countries which meet their targets and provides financial incentives to other countries to do so as quickly as possible. Surplus credits collected by countries exceeding their emission reduction target can be sold in the global market.
One credit is equivalent to one tonne of CO2 emission reduced. Carbon Credits (CC) are also created from project proponents or companies engaged in carbon sink projects such as forestation, or developing renewable energy products that offset the use of fossil fuels. In countries where GHG is below the target fixed by the Kyoto Protocol norms they are entitled to collect and sell surplus credits to developed countries not meeting their reduction limits.
It is here that European Union Allowances (EUAs), Certified Emissions Reduction Units (CERs) and Emission Reduction Units (ERUs) trading takes place. Companies or installations that cannot fulfill the new reduction target limits can buy the surplus or allocated credits from other companies, installations or project proponents through trading.
One credit is equivalent to one tonne of CO2 emission reduced. Carbon Credits (CC) are also created from project proponents or companies engaged in carbon sink projects such as forestation, or developing renewable energy products that offset the use of fossil fuels. In countries where GHG is below the target fixed by the Kyoto Protocol norms they are entitled to collect and sell surplus credits to developed countries not meeting their reduction limits.
It is here that European Union Allowances (EUAs), Certified Emissions Reduction Units (CERs) and Emission Reduction Units (ERUs) trading takes place. Companies or installations that cannot fulfill the new reduction target limits can buy the surplus or allocated credits from other companies, installations or project proponents through trading.
