Carbon credits

 Carbon credits are crucial to mitigating climate change by reducing greenhouse gas emissions. The concept is based on the principle of cap and trade, which involves setting a limit (or cap) on the total amount of greenhouse gases emitted by certain entities, such as companies or nations.

 

Here's how it typically works:

 

Setting a Cap: Government authorities or regulatory bodies limit the amount of greenhouse gases emitted by specific entities within a defined period. This cap is often based on the overall emissions reduction goals to combat climate change.

 

Issuing Credits: Under this system, entities that emit less than their allocated limit of greenhouse gases are awarded carbon credits. These credits represent a quantified amount of emissions, usually equivalent to one metric ton of carbon dioxide (CO2) or its equivalent in other greenhouse gases.

 

Trading: Entities with surplus credits can sell them to those exceeding their allocated limits. This creates a market for carbon credits, where the price is determined by supply and demand dynamics.

 

Compliance: Entities subject to emission limits can use purchased credits to meet their regulatory obligations, effectively offsetting their excess emissions. This incentivises emission reductions by creating a financial penalty for exceeding the emissions cap and a reward for staying below it.

 

Carbon credits can be generated through activities that either directly reduce emissions (e.g., renewable energy projects, afforestation) or remove carbon dioxide from the atmosphere (e.g., reforestation, carbon capture and storage projects). Each credit is rigorously measured, verified, and certified to ensure that the emissions reductions are real, additional (meaning they wouldn't have happened without the incentive of the credit), permanent, and verifiable.

 

The idea behind carbon credits is to create a financial incentive for reducing greenhouse gas emissions, encouraging investment in cleaner technologies and practices while providing flexibility for industries to comply with emission reduction targets cost-effectively. However, the effectiveness of carbon credit systems can vary depending on how they are designed, implemented, and enforced.