2. What Does Carbon Credit Mean?
A permit that allows the holder to emit one ton of carbon dioxide. Credits are
awarded to countries or groups that have reduced their green house gases below their
emission quota. Carbon credits can be traded in the international market at their current
market price.
The carbon credit system was ratified in conjunction with the Kyoto Protocol. Its goal is
to stop the increase of carbon dioxide emissions.
For example, if an environmentalist group plants enough trees to reduce emissions by
one ton, the group will be awarded a credit. If a steel producer has an emissions quota
of 10 tons, but is expecting to produce 11 tons, it could purchase this carbon credit from
the environmental group. The carbon credit system looks to reduce emissions by having
countries honor their emission quotas and offer incentives for being below them.
3. Need for carbon credits
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.
In modern times the burning of fossil fuels like coal, oil and natural gas – in which carbon
has been stored for millions of years – combined with accelerated land clearance has
led to exceptional levels of greenhouse gas emissions. Vegetation, largely forest, is
already absorbing about one-third of human-induced emissions, planting more
forests could increase absorption. Carbon sinks can’t keep up, and concentrations of
greenhouse gases in the atmosphere have risen dramatically leading to an enhanced
greenhouse effect which will result in very rapid warming of the world’s climate.
4. Emergence of Carbon credit
The concept of carbon credits came into existence as a result of increasing awareness
of the need for pollution control.
It is one of the outcomes of the Kyoto Protocol, an international agreement between
more than 170 countries.
Kyoto Protocol created legally binding emission targets for developing nations. To
meet these targets, nations must limit C02 emissions.
The Protocol was enforced from Feb’05.
5. Value of carbon credits
Carbon credits create a market for reducing greenhouse 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 labour.
Carbon credits are measured in tonnes of carbon dioxide.
1 credit = 1 tonne of CO2.
Each carbon credit represents one metric ton of C02 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.
6. Markets for Carbon Credits
Climate exchanges have been established to provide a spot market in allowances, as
well as futures and options market to help discover a market price and maintain liquidity.
Carbon prices are normally quoted in Euros per tonne of carbon dioxide or its equivalent
(CO2e).
Currently there are six exchanges trading in carbon allowances:
The Chicago Climate Exchange,
European Climate Exchange,
NASDAQ OMX Commodities Europe,
PowerNext, Commodity Exchange Bratislava
The European Energy Exchange.
Managing emissions is one of the fastest-growing segments in financial services.
7. China
Carbon Dioxide emission by countries (Million Tonnes) UnitedStates
India
Russia
Japan
Germany
Canada
Korea,South
Iran
UnitedKingdom
SaudiArabia
SouthAfrica
Mexico
Brazil
Australia
Indonesia
Italy
France
Spain
Taiwan
Poland
Ukraine
Thailand
Turkey
Netherlands
UnitedArabEmirates
Egypt
Kazakhstan
Argentina
Venezuela
Singapore
Malaysia
Pakistan
Belgium
Uzbekistan
Algeria
Iraq
Greece
Vietnam
CzechRepublic
HongKong
8. Source:
•Wikipedia
•Investopedia
•www.CARBONCREDITMART.com
•International Energy Statistics
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