“carbon credit “carbon credit” is a tradeable certificate. In particular, it’s an approval that gives the owner the ability to release, for some time period carbon dioxide or various greenhouse gasses (e.g. methane, nitrous oxide , or hydrofluorocarbons).
The carbon credit limit the emission to a single tonnes of carbon dioxide or the weight of another greenhouse gas that has carbon dioxide equivalent (tCO2e) equivalent to one tonne carbon dioxide. In another way, 1 carbon credit is one metric tonne of carbon dioxide that is prevented from being released into the atmosphere.
The origins behind carbon credits
Carbon Credits were developed in response to the need to control emissions (global carbon dioxide emissions in 2016 was around 36 million metric tons) and as a means of reducing greenhouse gas emissions and harmful gases from industrial activities (industries such as steel, power and textiles, as well as fertilizers and so on. that use all fossil fuels like natural gas, which are the main cause of the greenhouse gases that are released).
The Carbon Credits system was officially established through the Kyoto Protocol, while the mechanisms for regulating the Carbon Credits market were established in the Marrakesh Accords.
Who issues carbon credits?
The Kyoto Protocol establishes the quotas of greenhouse gases (denominated in units of a single unit) that every developed nation can emit. These are referred to as Assigned Amount Units (AAUs) are equivalent to an allowance to emit 1 tonnes of CO2 or a comparable greenhouse gas. Each country is then able to divide its quotas, assigning them to local companies and other organizations, establishing as a limitation to the CO2 emissions for each one of them.
Any government or other regulatory entity that is willing to limit carbon dioxide emissions is able to offer Carbon Credits. Carbon trading follows the principal in an emissions trading (or cap and trade) method, i.e. an approach based on market forces where economic incentives are offered to help reduce the emission of pollutants. One of the advantages of this strategy is the ability of organizations to choose to implement the emission trading programs in a way that is flexible and choose the most effective option to achieve their policy goals.
Find out more on this topic at the Axsess website.
Who purchases carbon credits?
Carbon Credits can be bought on a non-commitment basis, by any nation or business looking to reduce the carbon footprint of its operations.
The Kyoto Protocol divides countries into two groups based on the size of their economies developed and industrialized economies. The first group is an emission trading market giving every country a particular emission standards to be able to meet. If, for example an emission level is lower than the amount it is required to emit CO2, it is able to sell the excess credits to countries that are not meeting the emission standards set under Kyoto Protocol. Kyoto Protocol. The selling and buying of carbon Credits is governed by a legally binding contract known as ERPA (Emission Reduce Purchase Agreement). There is a different mechanism, known as the Clean Development Mechanism and specifically targeted at developing countries, that offers Carbon Credits in support of green development strategies (those Carbon Credits can be referred to as Certified Emission Reduction, or CER).
How do carbon credit work?
To understand better the way Carbon Credits work, let’s take a look at the following illustration:
The company A produces less the amount it wants to emit of CO2 which implies that the company A has surplus Carbon Credits. Company B, on the contrary, releases more than its goal amount of hydrocarbons, and so it either Company B pays a fine or attempts to purchase Carbon Credits from a different company. In this instance, Company A and Company B reach an agreement to trade Carbon Credits. Company A sells its surplus to Company B, getting money as well as positive feedback from its image and Company B buying Carbon Credits from Company A avoids paying a penalty.
Sellers and buyers can make use of an exchange platform for trading, that is similar to an exchange for carbon credits. However, in some instances it is possible that it’s cheaper to pay a fine rather than to purchase Carbon Credits due to their cost.
How much is a Carbon Credit
Carbon Credits don’t have the same significance. This is due to the fact that Carbon Credits are not as valuable. Carbon Credits market, like every other market with a voluntary structure does not have any central authority to set the rules or approaches to price the credits. Carbon Credits prices are determined by the dynamics of the market (primarily driven by demand and supply) and the cost of a particular undertaking (the Fairtrade Carbon Credit pricing model is a great model in this regard) or the company that is supporting projects that are carbon friendly (i.e. an enterprise initiative that is granted funds because it reduces the emissions of greenhouse carbon dioxide). In general the case of voluntary units, they are likely to be less valuable as compared to units that are sold through the regulation program (as as in the Clean Development Mechanism, for instance).
The current price for European Emission Allowances (CO2) currently is EUR20.75 (first ever in the last decade to cross that threshold, which is EUR20) and forecasts suggest that the EU carbon prices could rise to an average of between EUR35 and EUR40 per tonne over the period 2019-2023, indicating an acceleration in the transition from inefficient and polluting coal power plants to more efficient gas-fired ones and a decrease in carbon dioxide emissions from greenhouse gases.
Where do the carbon credits Where do the carbon credits
Carbon Credits are creating an excitement. In companies in the private sector there’s an increasing awareness of the worth and importance for nature-based capital (a stable climate, a flourishing ecosystem using renewable energy sources and more.) and businesses are increasingly embracing methods or technologies that reduce the environmental impact and become more eco-friendly.
It is a fact that there are those who regard positive the growth of carbon trading after years of stagnation, and others who openly denounce the carbon market, claiming the carbon market is not a valid solution to climate change.
Carbon offsets are taking an important place on the agendas of some nations, with some glaring contrasts. One of the criticisms made at Carbon Credits Carbon Credits system is the absence of transparency. Also where do Carbon Credits go? Are they just a complete fraud that takes advantage of the will of the companies willing to pay (sometimes large sums of cash) in order to offset their carbon emissions of hydrocarbons? Or is the system actually working?
In the past few years numerous initiatives were initiated to improve more transparent the Carbon Credits system more transparent and a variety of companies were created with the intention of offering Carbon Credits for sale to business and individuals: Cool Effect (that informs you about projects you can fund through the proceeds of your Carbon Credits), Native Energy, Terra Pass, Stand for Trees, Carbon Funds etc.
Our Take
The carbon offset mechanism itself is not too complicated. It is hard to predict but the impact that use of this method will result in a reduction in global emissions.
We are optimistic which is why we believe that in the theory of carbon offset can be beneficial in tackling the issue of global emission. Of of course, we don’t think that this is the only way to cut down on emissions and combat global warming.
The Carbon Credit system needs to be supported with an active manner, by both private and government entities too.
The Intergovernmental Panel On Climate Change (IPPC) recently released an exclusive report on the likely consequences of a global increase by 1.5degC. Scientists are of the opinion that we should take action now to promote more sustainable development, if are to find a solution for the increasing global temperature (compared the preindustrial level) as well as the global greenhouse gas emissions, which are the primary cause of the climate crisis (and the consequent natural disasters, etc. everywhere in the world).
Researchers have concluded that in order to limit temperature rises to 1.5degC Global CO2 emissions must be reduced to 45% of current levels by 2030. It is essential to invest in energy efficiency , and encourage the use of renewable energy sources and other renewable energy sources.
