14.1. CARBON CREDIT

Carbon credits are a tradable permit scheme. It is a simple, non-compulsory way to counteract the greenhouse gasses that contribute to climate change and global warming. Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air. The Carbon Credit is this new currency and each carbon credit represents one tonne of carbon dioxide either removed from the atmosphere or saved from being emitted. Carbon credits are also called emission permit. Carbon credit is in the Environment and Pollution Control subject. Carbon credits are certificates awarded to countries that are successful in reducing emissions of greenhouse gases.

Carbon credits serve as a financial incentive for organizations to reduce their carbon emissions. Essentially, they act as a system of permits allowing businesses and countries to buy and sell the right to emit carbon dioxide. One carbon credit is equivalent to one tonne of CO2. This means if a business reduces its emissions by one tonne, it earns a carbon credit that can be sold to another business looking to offset its emissions. This creates a market that encourages reduced pollution, as companies can profit from lowering their emissions.

Imagine a school where each student is allowed to have two fast food lunches a week. If someone decides to only have one, they can sell their extra lunch permit to a friend who really wants to have three lunches. The students with lower lunch permits earn credits they can sell, just like companies with lower emissions earn carbon credits to trade.

Carbon credits are generated as the result of an additional carbon project. Carbon credits can be created in many ways but there are two broad types:

1. Sequestration (capturing or retaining carbon dioxide from the atmosphere) such as afforestation and reforestation activities.
2. Carbon Dioxide Saving Projects such as use of renewable energies. These credits need to be authentic, scientifically based and Verification is essential. Carbon credit trading is an innovative method of controlling emissions using the free market.

Carbon credits can be generated from projects that either capture carbon dioxide from the air, known as sequestration, or by projects that prevent carbon dioxide emissions, such as using renewable energy sources. Sequestration projects might involve planting trees, which absorb CO2, while renewable projects might include wind or solar energy that replace fossil fuels. It is crucial that these credits are verified to ensure they genuinely represent reductions in CO2.

Think of carbon credits as coupons. If you plant a tree, it’s like earning a coupon for your effort, showing you’re helping the environment. If you use solar panels instead of coal power, that’s another coupon. To ensure the coupons are real, there’s a system (like a store) that checks them; only verified coupons count towards reducing waste.

Over millions of years, our planet has managed to regulate concentrations of greenhouse gases through sources (emitters) and sinks (reservoirs). Carbon (in the form of CO2 and methane) is emitted by volcanoes, by rotting vegetation, by burning of fossil fuels and other organic matter. But CO2 is absorbed, by trees, forests or by some natural phenomenon like photosynthesis and also oceans to some extent.

Our Earth has natural systems that emit and absorb greenhouse gases. Emissions from eruptions, decay, and human activities like burning fossil fuels contribute CO2 into the atmosphere. Meanwhile, trees and bodies of water help absorb CO2, acting as 'sinks.' We create an imbalance when emissions exceed these natural absorption capabilities, leading to climate change. This is where carbon credits come in, as they incentivize reducing emissions to regain balance.

Imagine a bathtub as the Earth’s atmosphere. If you keep pouring water (greenhouse gases) into a bathtub with a drain (absorption), it will overflow. Carbon credits help you manage how much water you add, encouraging you to keep the water levels just right without overflow, meaning less pollution.

There are two main markets for carbon credits: A) Compliance Market credits B) Verified Market credits (VERs)

The carbon credit market is divided into two categories. The Compliance Market is where companies trade carbon credits to meet government regulations. Verified Market credits (VERs) are trades occurring in a voluntary market, where companies choose to offset their carbon emissions beyond regulatory requirements. Both markets play vital roles in promoting the reduction of greenhouse gases.

Think of this as two types of schools. One school has strict grading rules that you must follow (compliance), while the other allows students to study extra just for personal improvement (verified). Both ensure education, but they operate on different levels of requirement.

Carbon credits create a market for reducing greenhouse gases emissions by giving a monetary value to the cost of polluting the air such as carbon emitted by burning of fossil fuels. This means that carbon becomes a cost of business and is seen like other inputs such as raw materials or labor. Carbon credits are measured in tonnes of carbon dioxide. 1 credit = 1 tonne of CO2. Each carbon credit represents one metric ton of CO2 either removed from the atmosphere or saved from being emitted. The carbon credit market creates a monetary value for carbon credits and allows the credits to be traded. For each tonne of carbon dioxide that is saved or sequestered carbon credit producers may sell one carbon credit.

The valuation of carbon credits turns greenhouse gas emissions into a business cost, similar to expenses like labor or materials. Each carbon credit represents one metric ton of carbon saved or removed, giving companies a financial incentive to lower their emissions. Selling these credits allows companies that succeed in reducing emissions to profit, creating a marketplace that motivates climate-friendly practices.

Imagine a factory that can produce 100 widgets (products) but also produces pollution. If it invests in cleaner technology reducing pollution by 10% and earns money selling its pollution credits, it’s akin to getting paid for being more efficient. Thus, cleaner production not only saves the environment but also boosts profits!

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