Carbon Trading Market – Background And Trends
Carbon trading is a method adopted to reduce the carbon emissions by industrialized countries, and the method has gained wide acceptance across the world in recent years. Carbon trading is essentially a trade in carbon credits in which each credit permits the purchaser to discharge one tonne of carbon dioxide and other greenhouse gases into the air, and it is the basic trading principle governing the cap-and-trade system as devised in the Kyoto Protocol.
The Kyoto protocol has put a cap on how much discharge can be allowed globally, which is later converted into carbon credits, and each operator receives a particular number of these credits. Operators with more eco-friendly technology generally do not use up all of their credits, and as a result, can sell these to those who predict that they will be exceeding their allotments. By having to make payment of an additional sum to be permitted to make those emissions, a de-motivating factor is made for high-emission operators.
Market trends in carbon trading indicate that it has become the greenhouse gases emission-lowering method of choice for most big industries throughout the globe. This is because carbon trading allows them flexibility in their short-term and medium-term strategies.
Carbon trading is increasing exponentially each year, as per the figures reported by the World Bank’s Carbon Finance Unit. There has been a great growth from 41% to 240% in the carbon trading market between the years 2003 and 2005. Growth in the London based carbon finance market has also been very impressive, establishing the fact that carbon trading is turning out to be a profitable business strategy for many organizations. Many states and industries in the US have also opted for carbon trading practices, even though the nation is not a signatory to the Kyoto Protocol. Further, the EU, which has its own carbon trading system, has also been very active in this global trading market.
However, there are some groups who have criticised this policy. Carbon trading is in fact aimed at making high-emission companies invest in more eco-friendly technologies and thereby encouraging development of low emission energy alternatives, which is not happening because defaulting companies seem to be keener on buying carbon credits instead of opting for eco-friendly technologies. Thus, carbon trading has been a topic of discussion in many parts of the world, and some experts are of the opinion that alternatives like taxation on extra carbon emissions is the more suited way to limit the greenhouse gas emissions.
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How Carbon Credits Contribute To A Cleaner Environment
Commercial and personal use of fossil fuels to generate energy has been widespread for several decades throughout the world. However, fossil fuels let out hazardous greenhouse gases like methane and carbon dioxide, which cause great harm to the environment. The emissions have resulted in an ever increasing accumulation of these hazardous gases in the air, giving rise to global warming, which can be destructive for earth.
The concept of carbon credits came into existence out of our necessity to control the emissions and protect the environment. Through the well known Kyoto protocol, an agreement among over 170 countries, it was decided to set limits on emissions of greenhouse gases by every participating nation. The country’s administration then utilizes the agreed limits and prescribes quotas to manufacturing units, identifying the amount of emissions they are permitted to make.
In order to encourage industries and other entities for emitting lesser than the quota and to penalize those who emit more, the concept of carbon credits was developed. According to its definition, one carbon credit is equivalent to a thousand kilos of CO2 released in the atmosphere. Under this idea, manufacturing companies have to purchase a precise amount of carbon credits from the international trading market if their emissions are higher than the quota, while those companies that are under their emission limit can sell an equivalent amount of carbon credits.
International trading of carbon credits focuses on decreasing greenhouse emissions by its ‘reward and penalty’ strategy, and promotes a cleaner environment. The trading of carbon credits has made companies make good their emissions, and it now has a direct impact on the firm’s financial statement. Companies have therefore woken up to the necessity of reducing their emissions and find environment friendly industrial options.
Carbon offset credit is another innovative scheme to reduce greenhouse gas emission, which works on a similar strategy. One carbon offset stands for the decrease of one metric ton of CO2 or an equivalent in other greenhouse gases. Using greener and renewable energy sources like wind and tidal energy helps to attain this crucial decrease.
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Factors To Consider Before Buying Carbon Offset
With the threat of global warming hovering over our delicate environment, free market strategies like carbon offset and carbon credits that are proving to be powerful tools for environment preservation have caught the fancy of individuals as well as companies.
If you want to compensate for the adverse effects your activities have had on the environment, you can buy a certain amount of carbon offset in order to cancel out the damage caused by you. The amount you invest on a carbon offset will help fund green projects like wind farms that generate energy without causing dangerous emissions.
Before venturing into carbon offset, you must first look at your everyday actions that lead to emissions of greenhouse gases. When people drive their cars, fly in airplanes, use household appliances like heaters or air conditioners, they are causing carbon emissions.
Once you have listed out these activities, you should plan to give up some of them and lower some as far as practicable. Doing this would help you to greatly reduce your contribution in degrading the environment. You can reduce your carbon footprint by using low energy lighting, by driving less and also by fitting proper insulation to save power while using heating or cooling appliances.
After you have considered all the areas where you can make improvements, you should start calculating your carbon footprint, which will be the total emissions resulting from all your remaining actions. The method of calculating this footprint varies from one action to another, but there are many online calculators which can help you in the matter.
When you buy an offset, the offset providers adjust the adverse effects of your carbon footprint by lowering emissions at any location in any nation. There are different ways of lowering emissions and you can select a project from the ones offered by the offset providers for investing. But you should be cautious before making the investment. You must not put your money in projects with suspicious credentials as that might eventually result in wastage of your funds. Many accrediting agencies conduct extensive checks on authenticity and effectiveness to certify projects, and it is always a sensible idea to invest in an approved and recognized project.
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