What Does Carbon Credit Mean?A permit that allows the holder to emit one ton of carbon dioxide. Credits areawarded to countries or groups that have reduced their green house gases below theiremission quota. Carbon credits can be traded in the international market at their currentmarket price.The carbon credit system was ratified in conjunction with the Kyoto Protocol. Its goal isto stop the increase of carbon dioxide emissions.For example, if an environmentalist group plants enough trees to reduce emissions byone ton, the group will be awarded a credit. If a steel producer has an emissions quotaof 10 tons, but is expecting to produce 11 tons, it could purchase this carbon credit fromthe environmental group. The carbon credit system looks to reduce emissions by havingcountries honor their emission quotas and offer incentives for being below them.
Need for carbon creditsOver millions of years, our planet has managed to regulate concentrations ofgreenhouse gases through sources (emitters) and sinks (reservoirs). Carbon (in the formof CO2 and methane) is emitted by volcanoes, by rotting vegetation, by burning of fossilfuels and other organic matter. But CO2 is absorbed, by trees, forests or by somenatural 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 carbonhas been stored for millions of years – combined with accelerated land clearance hasled to exceptional levels of greenhouse gas emissions. Vegetation, largely forest, isalready absorbing about one-third of human-induced emissions, planting moreforests could increase absorption. Carbon sinks can’t keep up, and concentrations ofgreenhouse gases in the atmosphere have risen dramatically leading to an enhancedgreenhouse effect which will result in very rapid warming of the world’s climate.
Emergence of Carbon creditThe concept of carbon credits came into existence as a result of increasing awarenessof the need for pollution control.It is one of the outcomes of the Kyoto Protocol, an international agreement betweenmore than 170 countries.Kyoto Protocol created legally binding emission targets for developing nations. Tomeet these targets, nations must limit C02 emissions.The Protocol was enforced from Feb’05.
Value of carbon creditsCarbon credits create a market for reducing greenhouse emissions by giving a monetaryvalue 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 suchas 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 theatmosphere or saved from being emitted.The carbon credit market creates a monetary value for carbon credits and allows thecredits to be traded. For each tonne of carbon dioxide that is saved or sequestered carbon creditproducers may sell one carbon credit.
Markets for Carbon CreditsClimate exchanges have been established to provide a spot market in allowances, aswell 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 BratislavaThe European Energy Exchange.Managing emissions is one of the fastest-growing segments in financial services.
ChinaCarbon 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
Source: •Wikipedia •Investopedia•www.CARBONCREDITMART.com •International Energy Statistics THANK YOU