Fossil fuels have been extensively used as the main source of energy for several decades now in all types of industries and for personal use. However, release of greenhouse gases like methane and CO2 is caused by fossil fuels, which is quite harmful for the environment. Increasing emissions have caused a very high level of concentration of these gases in the atmosphere, resulting in global warming, which is endangering life on the planet.
The carbon credit scheme was a direct outcome of the need to control emissions and safeguard the planet. Over 170 countries had decided through the Kyoto protocol to fix limits on greenhouse gas emissions across the globe in a pact back in 2005. The nations’ government then makes use of the agreed limits and assigns quotas to various manufacturing entities, fixing the cap for emissions by them so that their business activities do not result in excessive emissions.
By means of the carbon credits system, the government grants incentives to manufacturing units that create emissions less than the quota, and penalizes those who are not able to do so. According to its definition, one carbon credit amounts to a thousand kilos of carbon dioxide emitted in the atmosphere. In this novel scheme, manufacturing units or companies that emit greenhouse gases below the allocated quota can sell carbon credits of an amount equivalent to the difference, on the other hand those units that release above the limit will have to purchase a corresponding amount of carbon credits from the market.
Such global trading of carbon credits is targeted at regulating the overall quantity of emissions of greenhouse gases in the air by encouraging lower emissions by industrial units. The trading of carbon credits has made companies make good their emissions, and it now has a direct effect on the firm’s financial analysis. This has led companies to actively look for means to reduce their emissions and opt for cleaner methods of doing business.
Another emission controlling financial scheme is the carbon offset credit, which serves a very similar purpose. A carbon offset credit is equal to decrease of one metric ton of carbon dioxide or equivalent greenhouse gas in the air. This CO2 decrease is obtained by using renewable and eco-friendly energy sources like tidal and wind energy.
A carbon offset is purchased just as carbon credits to offset the extra emissions of that specific organization over and above the allocated limits for compliance to the regulations. Persons, governments and organizations can all purchase it voluntarily as well to offset their carbon footprint. This helps in encouraging and financing reduction in emissions and furthering eco-friendly efforts of production of energy.
Learn more about Carbon Credits and Carbon Offset and get a deeper understanding on how you can help in saving the environment. You can get a unique content version of this article from the Uber Article Directory.
