The terms carbon trading and carbon credits are often referred in conferences about global warming everywhere, but not everyone comprehends what is meant by these words. Carbon trading is a system whereby greenhouse gas emissions are limited under the Kyoto Protocol, and these limits are then allocated throughout the global market in such a manner as to promote lower emissions or lessen release of carbon dioxide and other greenhouse gases.
Governments and industrial units in many countries are permitted a certain number of carbon credits, giving them the right to emit a limited quantity of carbon dioxide and other greenhouse gases into the atmosphere. One carbon credit amounts to the release of one ton of carbon dioxide. This basically means that high-emission entities can purchase carbon credits from low-emission industries, thereby maintaining the net global emissions within the stipulated cap.
The good thing about this system is that businesses and industries causing pollution of the environment have to pay for their excesses in the form of purchase of carbon credits from the trading market. However, both entities selling and buying the credits can be found in the carbon credits world market. Hence the economy as a whole does not lose out at all, while companies with environment friendly processes make higher profits. This makes companies move away from the carbon-intensive methods of manufacturing, and so the emission levels decrease.
Free trade of carbon credits on stock exchanges allows greener energy and process usage of an organization to be incentivised and capitalized, whether the company is a small one or a big one. This trading strategy makes sure immediate and great rewards for companies with a low emission record. Moreover, with countries and their administration involved in the idea, national governments on their part would have to ask local companies to decrease emissions, and thus these governments would be pulled out of their conventional stance of indifference towards environmental matters.
Other alternatives like carbon tax are also implemented in some countries of the world, which brings to book high emission organizations rather than financially incentivising the low emission ones. The efficacy of such schemes is still an issue of debate.
So far carbon trading has been most successful as a method and within a short period has been able to successfully address the problem of high carbon emissions. The carbon trading market has seen huge increase in the last few years, which most people perceive as proof that the system works quite well.
Governments and industrial units in many countries are permitted a certain number of carbon credits, giving them the right to emit a limited quantity of carbon dioxide and other greenhouse gases into the atmosphere. One carbon credit amounts to the release of one ton of carbon dioxide. This basically means that high-emission entities can purchase carbon credits from low-emission industries, thereby maintaining the net global emissions within the stipulated cap.
The good thing about this system is that businesses and industries causing pollution of the environment have to pay for their excesses in the form of purchase of carbon credits from the trading market. However, both entities selling and buying the credits can be found in the carbon credits world market. Hence the economy as a whole does not lose out at all, while companies with environment friendly processes make higher profits. This makes companies move away from the carbon-intensive methods of manufacturing, and so the emission levels decrease.
Free trade of carbon credits on stock exchanges allows greener energy and process usage of an organization to be incentivised and capitalized, whether the company is a small one or a big one. This trading strategy makes sure immediate and great rewards for companies with a low emission record. Moreover, with countries and their administration involved in the idea, national governments on their part would have to ask local companies to decrease emissions, and thus these governments would be pulled out of their conventional stance of indifference towards environmental matters.
Other alternatives like carbon tax are also implemented in some countries of the world, which brings to book high emission organizations rather than financially incentivising the low emission ones. The efficacy of such schemes is still an issue of debate.
So far carbon trading has been most successful as a method and within a short period has been able to successfully address the problem of high carbon emissions. The carbon trading market has seen huge increase in the last few years, which most people perceive as proof that the system works quite well.
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