What is Carbon Credit?
Carbon credits are a key component
of national and international emissions trading schemes
that have been implemented to mitigate global warming.
They provide a way to reduce greenhouse effect emissions
on an industrial scale by capping total annual emissions
and letting the market assign a monetary value to
any shortfall through trading. Credits can be exchanged
between businesses or bought and sold in international
markets at the prevailing market price. Credits can
be used to finance carbon reduction schemes between
trading partners and around the world.
There are also many companies that
sell carbon credits to commercial and individual customers
who are interested in lowering their carbon footprint
on a voluntary basis. These carbon offsetters purchase
the credits from an investment fund or a carbon development
company that has aggregated the credits from individual
projects. The quality of the credits is based in part
on the validation process and sophistication of the
fund or development company that acted as the sponsor
to the carbon project. This is reflected in their
price; voluntary units typically have less value than
the units sold through the rigorously-validated Clean
Burning of fossil fuels is a major
source of industrial greenhouse gas emissions, especially
for power, cement, steel, textile, and fertilizer
industries. The major greenhouse gases emitted by
these industries are carbon dioxide, methane, nitrous
oxide, hydrofluorocarbons (HFCs), etc, which all increase
the atmosphere's ability to trap infrared energy and
thus affect the climate.
The concept of carbon credits came
into existence as a result of increasing awareness
of the need for controlling emissions. The IPCC has
Policies that provide a real
or implicit price of carbon could create incentives
for producers and consumers to significantly invest
in low-GHG products, technologies and processes. Such
policies could include economic instruments, government
funding and regulation,
while noting that a tradable permit
system is one of the policy instruments that has been
shown to be environmentally effective in the industrial
sector, as long as there are reasonable levels of
predictability over the initial allocation mechanism
and long-term price.
The mechanism was formalized in the
Kyoto Protocol, an international agreement between
more than 170 countries, and the market mechanisms
were agreed through the subsequent Marrakesh Accords.
The mechanism adopted was similar to the successful
US Acid Rain Program to reduce some industrial pollutants.
Source from : http://en.wikipedia.org/wiki/Carbon_credit