All About Carbon Credits

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    Nov 15, 2012
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Carbon credits are tradable credits that can be used to increase the carbon emissions a country can produce. If a country doesn’t use all of their carbon credits, they’re allowed to trade those credits to another country. This helps that country avoid penalties associated with over-emitting. Carbon credits are part of a simple formula, designed to control the release of carbon dioxide into the environment.  

If a country has done their civic duty and reduced their greenhouse gases, they’ll be given some credits that allow them to hold one ton of carbon dioxide. In order to get this, the greenhouse gases must be reduced. It must be reduced below the country’s emission quota. These quotas are agreed upon by everyone involved in the program. 

These credits can then be traded, but it’s important for countries to pay attention to current market prices. Just like any economy, the market price for carbon credits is going to fluctuate between high and low. Clearly countries will want to buy low and sell high, just like with the stock market. It may be a good idea to consult with an expert before moving forward on any carbon trades.

Carbon trades are especially beneficial to large countries that are unable to meet the current emissions standard. These countries won’t have a surplus. In fact, they may exceed their allotted amounts. In that case they would seek out a country with carbon credits in surplus. They would then pay that nation to allot them their surplus. The result is that both companies fall within emissions standards and no one is penalized.

All carbon credits are based on the principles of the Kyoto Protocol. This protocol is an international agreement between many countries. Someday this agreement may stretch to all countries, but today it does not. The countries that have ratified the Kyoto agreement are all involved in carbon trading, sometimes earning themselves massive incomes when their carbon is purchased.

If a country violates the Kyoto Protocol and emits more than their assigned limit, they will be punished. Customers that go over in emissions will not receive as many emissions the next year, forcing them to emit even less or pay even more for carbon credits. It’s recommended that countries evaluate their greenhouse gas emissions and work on ways to improve what they’re emitting. If they can have a surplus, they can even make more money for their government by selling their remaining credits.

The value of a carbon credit changes depending on the tax that’s levied on the carbon. More than that other factors include the cost to achieve reduction and the supply and demand. The result is a cost that’s constantly fluctuating. Typically carbon credits are based on one ton of carbon.

The greenhouse problem is of growing concern to the world’s people. Carbon credits are one part of the solution to that problem. These credits and penalties allow for some flexibility while the world’s scientists work on more permanent solutions to the issue. For now, carbon dioxide and greenhouse gasses are monitored and audited. If a country thinks they’re going to over-emit they simply need to purchase more credits from a country with a surplus. It’s a good system.  

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