By the end of 20th century there was growth in industrialization, and on the contrary, the pressure of greenhouse gases and global warming grew. Industrial byproducts and wastes are the core reason for global warming. Carbon credit aims to reduce the release of carbon-di-oxide in the air. The central support of functioning of carbon credit system is governmental support and support of various other organizations. This whole system works by putting up charges against emission of carbon or hydrocarbons about per ton. It is basically like a license given to a subject to allow him to emit a certain amount of carbon gases, beyond this limit he will be penalized. This carbon credit is provided only for certain period.
Carbon credit may be defined as, an authorization given to any country or an organization which permits them to produce a certain level of carbon emissions.” This carbon credit can be traded in case the full allowances is not utilized.
Suppose a company ABC has a cap of 100 tons but produces 110 tons of carbon emissions. Company XYZ also has an emission cap of 100 tons but emits only 90 resulting in more than ten credits. Company ABC may purchase the additional credits from Company XYZ to remain in compliance. Otherwise, Company ABC would face penal charges. When the fines exceed the cost to buy, the company will favor purchasing the credits. However, sometimes the price to acquire the credits exceeds the penalties. In such cases, some companies accept the deaths and continue operations and the emissions of hydrocarbons.
Characteristics of carbon credits:
Some of the characteristics features of carbon credits are:
- Individual’s benefits:
Domestic users can also gain benefits of carbon credit system by selling their credits.
- Purchase of greenhouse gases:
Purchase of carbon- credits is a profit-making business. Purchase of these credits mandates the company to install more sustainable method, and eco-friendly approach reduces the emission of carbon-di-oxide and other greenhouses gases in the atmosphere.
If carbon credit system is used correctly and fairly, the company can gain massive business profits, which in turn will generate employment. Also, with this support, more companies are set-up which produces job opportunities.
This whole idea of introducing carbon credit system was presented in the gathering of nations. This Kyoto protocol rectified this agreement about carbon credits. Some highlights of Kyoto Protocol:
UNFCCC- The Kyoto Protocol saw the formation of the United Nations Framework Convention on Climate Change.
Cap and trade- The Kyoto protocol divide the nation as developed and developing countries. Countries belonging to Annexure -1 gives each nation its emission trading standard. It the country produces less than cap amount it of hydrocarbons, it can sell the same.
AAU’s- Agreement Amount Unit is allotment number given to each country.
Trading targets: The Trading companies were told to reduce their emission by 5% till 2012. They well also allowed to buy and sell their credits to meet their needs.
Smooth mechanisms- The two flexible arrangements of Kyoto Protocol are called, “Clean development mechanism” and “joint Implementation.”