Carbon credits and carbon trading are common topics for debates and conventions on environmental matters, but a majority of us are not fully acquainted with these concepts. In the system of carbon trading, regulations are imposed on greenhouse gas emissions under the Kyoto Protocol, and the pre-decided emission limits are then allocated across nations, which have to regulate the greenhouse gas emissions from the various industries and business units operating within them.

Carbon credits are allocated to industrial units and governments throughout the world, which allows the owner to discharge a limited amount of CO2 and other greenhouse gases into the air. One carbon credit is equal to one thousand kilos of carbon dioxide discharge. This essentially means that high-emission entities can purchase carbon credits from low-emission industries, thereby maintaining the overall global emissions within the prescribed cap.

The major benefit of carbon trading is that it leads to a scenario where businesses tending to exceed their emission limits have to pay a significant sum to do so, as they have to buy carbon credits from the world market. However, this is a quid pro quo trade where selling and purchasing of carbon credits are done simultaneously by low and high emission companies. Hence the balance in global economy is sustained, while organizations with low emission records earn profits. This makes companies move away from the carbon centric methods of manufacturing, and so the emission levels decrease.

By permitting the carbon credits to be traded freely on global exchanges, it can be ensured that irrespective of the size of the organization, greener processes are always rewarded and can be conveniently monetized. This trading strategy makes sure instant and great rewards for companies with a low emission record. Moreover, the entire concept has also been expanded to countries, there would always be incentives to decrease emissions from the respective governments to local organizations, which is a huge advantage as several governments are usually blamed for absence of initiative on environment.

Other choices like carbon tax are also in place in some parts of the world, which penalises high emission organizations rather than financially incentivising the low emission ones. The success of such systems is highly debatable and issue of contention at times.

In a short span since its inception, carbon trading has proven to be the most appropriate means to tackle the issue of carbon emissions. The efficacy of the system is evident from the unparalleled increase in the carbon trading market witnessed in the last few years.

Discover more about Carbon Credits and Carbon Trading to get a deeper understanding on how you can help in saving the environment.

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