Carbon credits help combat climate change by allowing companies and individuals to offset their carbon emissions through projects that reduce greenhouse gases.
Types of Carbon Credits
- Voluntary Carbon Credits
- Purpose: Voluntarily offset emissions.
- Market: Unregulated, used for CSR and sustainability goals.
- Certification: Verified by standards like the Verified Carbon Standard (VCS) or the Gold Standard.
2. Compliance Carbon Credits
- Purpose: Required by law to meet regulatory emission caps.
- Market: Operates under government-regulated cap-and-trade systems.
-Examples: European Union Emissions Trading System (EU ETS), California Cap-and-Trade Program.
Working of Carbon Credits
- Emission Caps
- Setting Limits: Regulatory bodies set a cap on total emissions, decreasing over time.
- Allocation: Companies get emission allowances or permits.
2. Emission Reduction Projects
- Project Development: Projects reduce or sequester CO2 (e.g., reforestation, renewable energy).
- Verification: Independent verification awards carbon credits for reduced emissions.
3. Market Trading
- Buying and Selling: Companies buy credits if they exceed their allowances.
- Price Signals: Prices reflect supply and demand, incentivizing more reduction projects.
- Offsetting: Companies/individuals buy credits to offset their emissions.
Carbon credits are essential for reducing global emissions. They work by setting caps, supporting reduction projects, and enabling market trading, allowing both regulated and voluntary efforts to contribute to sustainability.
