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Carbon Credits and How They Can Offset Your Carbon Footprint

  • Carbon credits are also popular by the term 'carbon offsets. They are permits that give the owner of an individual entity or a large company the to emit a certain amount of greenhouse gases (especially carbon dioxide) into the atmosphere. One credit permits the owner to emit one ton of CO2 or the equivalent of other greenhouse gases.
  • The carbon credit is half of a "cap-and-trade program", as popularly known by the people. Companies that are responsible for polluting the environment are provided with credits that allow them to release such gases up to a fixed limit, which gets reduced with time.
    Carbon Credits and How They Can Offset Your Carbon Footprint
  • In the meantime, the companies are free to sell any credits it doesn't need to any other entity that requires it. In this way, private businesses have two ways in which they can lower greenhouse gas emissions. In case their emissions exceed the cap, they have to pay for extra credits beforehand. And by cutting their emissions and reselling their extra allowances to needy companies, they can generate profit for themselves.
  • The proponents that are their carbon credits system suggest that it causes certified climate action initiatives to reduce, eliminate or avoid the emissions of greenhouse gas (GHG) in our environment with the help of a method that is measurable as well as verifiable.

Key Lessons

  • Carbon credits were proposed as a mechanism that can be used to reduce the emission of greenhouse gases into the environment and help in controlling and reducing global warming, which in turn leads to climate change.
  • Companies are given a fixed number of credits which reduce as time passes, and they are free to sell any excess to a different company.
  • A monetary incentive is created by the carbon credits so that companies can reduce their carbon emissions. The companies that are unable to reduce carbon emissions of their companies can still operate but at a higher financial cost.
  • The model that was used to reduce the pollution caused by sulfur in the 1990s is the cap-and-trade model, and it is the one on which carbon credits are based.
  • At the Glasgow COP26 climate change summit, which was held in November 2021, negotiators agreed to create an offset trading market for carbon credits.

How Do Carbon Credits Work?

The final goal of carbon credits is to lessen the emission of greenhouse gases into our environment. To be precise, a carbon credit displays the right to release greenhouse gases equivalent to a ton of carbon dioxide. The Environment Defense Fund says that a ton of carbon dioxide in the form of carbon credits is equivalent to a 2,400 - mile drive in terms of carbon dioxide emissions.

Carbon Credits and How They Can Offset Your Carbon Footprint

Nations or companies are given a fixed number of carbon credits and are free to trade them to help in balancing worldwide carbon emissions. As it is known that carbon dioxide is the main greenhouse gas, the United Nations says that people across the globe speak simply of trading in carbon.

As it is known to everyone that carbon dioxide is the main greenhouse gas of all, it is said by the United Nations that trading in carbon is spoken about very simply by people around the world. The main aim is to decrease the number of credits slowly so that it can encourage businesses to think and develop new strategies which can help in lowering greenhouse gas emissions.

Carbon Credits in the U.S. Today

In the U.S., cap-and-trade regimes are still divisive. Although, the Center for Climate and Energy Solutions has suggested that 11 states have accepted such market-based strategies that are developed by the government for reducing greenhouse gas emissions. Ten of them are Northeastern states that teamed together under the Regional Greenhouse Gas Initiative to collectively combat the issue (RGGI).

The Cap-and-Trade Program in California

2013 saw the start of California's cap-and-trade scheme. The state's significant electric power plants, industrial facilities, and gasoline distributors are subject to the regulations. After the programs of the European Union, the Chinese province of Guangdong, and South Korea, the state claims that its program is the fourth largest across the globe.

Carbon Credits and How They Can Offset Your Carbon Footprint

A market system is sometimes used to characterize the cap-and-trade system. In other words, it establishes a market value for emissions. Its supporters contend that a cap-and-trade program provides an incentive for businesses to invest in cleaner technology rather than purchasing permits, the price of which will rise yearly.

United States Clean Air Act

Since the passage of the U.S. Clean Air Act in 1990, which is recognized as the first cap-and-trade program in the history of the world (despite referring to the caps as "allowances"), the United States has regulated airborne emissions.

The Environmental Defense Fund attributes the program's success to a significant decrease in sulfur dioxide emissions from coal-fired power stations, which were a major contributor to the infamous acid rain of the 1980s.

The Inflation Reduction Act

  • The newest development that is expected to have an impact on the carbon credit market is the Inflation Reduction Act. It is a landmark bill that was made legal on Aug. 16, 2022. The main aim of this bill was to reduce the deficit, reduce carbon emissions and fight inflation as well.
  • The legislation has its prime focus on cleaning up the environment and has a provision that promises rewards to the high-emitting companies that do not release their greenhouse gases into the environment but store them underground or, better, utilize them in manufacturing other products. The rewards mean significantly expanded tax credits which escalate from $50 to $85 for each metric ton of carbon emissions that are being stored underground, and for each ton of carbon emissions used in manufacturing other products or fir oil rec, it has increased from $35 to $60.
  • These more generous credits are hoped to convince investors owning such high emitting companies to make a bigger effort towards capturing carbon 3missions and using it for manufacturing bother things. Previously, 45Q, the tax incentive was accused of paying just enough to make the carbon capture project an easy path to pursue.

Carbon Credit Initiatives across the globe

  • In an accord known as the Kyoto Protocol that took place in 1997, the Intergovernmental Panel on Climate Change (IPCC) developed a plan for carbon credit that could help lower global carbon emissions. This plan established legally binding emission reduction targets for the signatory nations. Another agreement, known as the Marrakesh Accords, laid forth the guidelines for how the system would function.
    Carbon Credits and How They Can Offset Your Carbon Footprint
  • Countries were categorized between industrialized and developing economies under the Kyoto Protocol. The industrialized nations that makeup Annex 1 participated in their own emissions trading market. Through an Emissions Reduction Purchase Agreement, a nation that exceeded its hydrocarbon emission target might sell its excess credits to nations that fell short of their Kyoto-level targets (ERPA).
  • Certified Emission Reductions, or CRCs, are carbon credits that were distributed under the distinct Clean Development Mechanism for developing nations (CER). These points could be awarded to a developing country that supports sustainable development programs. CER trading was placed on a different market.
  • The Kyoto Protocol's initial commitment period came to an end in 2012.
  • The United States of America had already stepped back in the year 2001.

The Climate Agreement of Paris

  • An agreement that updated the Kyoto Protocol, known as the Doha Amendment, was made official as of October 2020, and 147 countries became members and "deposited their instrument of acceptance."
  • More than 190 nations have accepted the 2015 Paris Agreement, which also creates emission standards and allows emissions trading. The United States left the pact in 2017 under the administration of then-President Donald Trump, but President Biden later brought it back in January 2021.

Important fact:

The Paris Agreement, also known as the Paris Climate Accord, was reached by the heads of state and governments of more than 180 nations to reduce greenhouse gas emissions and keep the rise in global temperature to under 2 degrees Celsius (36 degrees Fahrenheit) by the year 2100.

Glasgow's 26th Conference on Climate Change

  • Article 6 of the 2015 Paris Agreement was implemented by nearly 200 countries as a result of an agreement made at the summit in November 2021. Through the purchase of offset credits, which represent other countries' emission reductions, this agreement enables countries to advance toward their climate goals. The pact aims to persuade governments to provide funding for initiatives and innovations that protect forests and build infrastructure for renewable energy sources to mitigate climate change.
  • Other provisions that are present in the agreement include not levying any taxes on countries that trade offsets bilaterally and canceling 2% of all credits to lower global emissions. Additionally, to help developing nations combat climate change, 5% of offset revenue will be added to a fund for adaptation. Three hundred twenty million credits were able to put their feet in the new market which was a result of the negotiations' agreement to carry over the offset that had been registered since 2013.

1. Why should atmospheric carbon and greenhouse gas concentrations be lowered?

Scientists working at the United Nations Intergovernmental Panel on Climate Change (IPCC) have successfully proved that the constant increase of greenhouse gases in the atmosphere is increasing the planet's temperature. This causes extreme weather changes across the globe. Currently, the main greenhouse gas in the atmosphere is carbon which is created by burning fossil fuels, that is - coal, oil, and gas. With an attempt to control the amount of carbon that is emitted into the environment, we might be able to avoid further environmental degradation caused by greenhouse gases.

2. How much does a carbon credit cost?

Carbon Credits and How They Can Offset Your Carbon Footprint

There is no fixed price to carbon credits, and they have different prices which depend upon the market and location where they are traded. In the year 2019, the average price of carbon credits was $4.33 per ton. This figure jumped up to the price of $5.60 per ton in the year 2020 and is now finally settled at the price of $4.73 in the first eight months of the following year.

3. Where can you buy carbon credits?

Several private companies offer carbon offsets to individuals as well who are seeking to lessen their net carbon footprint. These offsets are financial investments in or donations to forestry initiatives or other initiatives with low carbon footprints. There are several sources from where people can buy transferable credits on a carbon exchange, like Singapore's AirCarbon Exchange or New York's Expansive CBL.

4. How vast is the carbon credit market?

Due to the number of restrictions in each market and other differences based on the region, assumptions about the size of the carbon credit market are very different from one another. According to some estimates, the voluntary carbon market, which is primarily made up of businesses that purchase carbon offsets for corporate social responsibility (CSR) purposes, was worth $1 billion in 2021. Estimates for the market for compliance credits, which are connected to regulated carbon caps, range up to $272 billion for 2020.

The Conclusion

Carbon credits were invented as a method to reduce the emission of greenhouse gases in our environment and have proven to be an effective method as well. By establishing a market where businesses or people can trade emission permits, this is accomplished. The scheme provides businesses with a predetermined number of carbon credits, which diminishes over time. Any surplus may be sold to any other business or person.

For businesses or people, carbon credits provide a financial incentive to work toward lowering their carbon emissions. Companies that are unable to lower their carbon emissions can still run their businesses, although at a higher cost. Research over the years has proved that the carbon credits system has led to measurable as well as verifiable emission reductions over the years.

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