Carbon credits and carbon trading are hot topics for debates and discussions on environmental matters, but a majority of us are not completely acquainted with these terms. In the carbon trading system, commercial entities have to stick to the emission limits of greenhouse gases as set by the Kyoto Protocol that decides and allots these caps across nations to encourage regulated emissions or discourage carbon-intensive methods of running industries.
Governments and industries in many countries are permitted a certain number of carbon credits, providing them with the right to emit a limited amount of carbon dioxide and other greenhouse gases into the atmosphere. One carbon credit means one ton of carbon dioxide released in the environment. This means that low-emission industries can sell carbon credits to high-emission corporations, thereby creating a cap on the greenhouse gas emissions in the world.
This system requires that corporations pay a huge sum for greenhouse gas emissions that go beyond tolerable limits, and this penalty on them is implemented by making purchase of carbon credits mandatory for them. However, for every company that is buying credits, there will be a company which is selling these credits. Therefore the overall economy does not get affected at all, while organizations with eco- friendly mechanisms make higher profits. This inspires companies to adopt greener alternatives, and slowly the global rate of greenhouse gas emissions comes down.
Open trade of carbon credits on stock exchanges enables greener energy and process usage of an organization to be incentivised and capitalized, whether the organization is a small one or a large one. The trading mechanism implies that the advantages to efficient companies are instant and huge. Moreover, nation-wise allotment of limits makes national governments more actively encourage local organizations to decrease emissions. This in turn improves the government's reputation and makes it proactively work towards environment protection, something that is greatly effective in encouraging eco-friendly technologies.
Carbon tax is another option that may be implemented, in which organizations responsible for pollution are punished but eco-friendly organizations are not rewarded for low emissions. There is much speculation over the effectiveness of such systems.
Till date no other system has been able to successfully manage the problem of carbon emissions better than carbon trading. The efficacy of the system is clear from the unprecedented increase in the carbon trading market witnessed in the last few years.
Governments and industries in many countries are permitted a certain number of carbon credits, providing them with the right to emit a limited amount of carbon dioxide and other greenhouse gases into the atmosphere. One carbon credit means one ton of carbon dioxide released in the environment. This means that low-emission industries can sell carbon credits to high-emission corporations, thereby creating a cap on the greenhouse gas emissions in the world.
This system requires that corporations pay a huge sum for greenhouse gas emissions that go beyond tolerable limits, and this penalty on them is implemented by making purchase of carbon credits mandatory for them. However, for every company that is buying credits, there will be a company which is selling these credits. Therefore the overall economy does not get affected at all, while organizations with eco- friendly mechanisms make higher profits. This inspires companies to adopt greener alternatives, and slowly the global rate of greenhouse gas emissions comes down.
Open trade of carbon credits on stock exchanges enables greener energy and process usage of an organization to be incentivised and capitalized, whether the organization is a small one or a large one. The trading mechanism implies that the advantages to efficient companies are instant and huge. Moreover, nation-wise allotment of limits makes national governments more actively encourage local organizations to decrease emissions. This in turn improves the government's reputation and makes it proactively work towards environment protection, something that is greatly effective in encouraging eco-friendly technologies.
Carbon tax is another option that may be implemented, in which organizations responsible for pollution are punished but eco-friendly organizations are not rewarded for low emissions. There is much speculation over the effectiveness of such systems.
Till date no other system has been able to successfully manage the problem of carbon emissions better than carbon trading. The efficacy of the system is clear from the unprecedented increase in the carbon trading market witnessed in the last few years.
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