Commercial and personal use of fossil fuels to generate energy has been widespread for many decades throughout the world. However, fossil fuels give out harmful greenhouse gases like methane and carbon dioxide, which result in great damage to the environment. Rising levels of emissions have led to a very high level of concentration of these gases in the atmosphere, causing global warming, which is endangering life on earth.
The carbon credit system was a direct result of the need to check emissions and protect the environment. Through the well known Kyoto protocol, an agreement among over 170 countries, it was decided to set limits on emissions of greenhouse gases by every member country. The fixed limits are then used by the country's government for allocating quotas to various industrial and commercial entities of how much emission they are allowed.
Through the carbon credits system, the government grants incentives to manufacturing entities that create emissions below the quota, and penalizes those who are not able to do so. One carbon credit is equal to one ton of carbon dioxide emission into the environment. In this innovative scheme, manufacturing units or firms that emit greenhouse gases within the allocated quota can sell carbon credits of an amount corresponding to the difference, on the other hand those units that release more will have to purchase a corresponding amount of carbon credits from the market.
Such global trading of carbon credits is aimed at regulating the overall amount of emissions of greenhouse gases in the air by encouraging lesser emissions by industrial entities. The trading of carbon credits has made emissions an internal cost of doing business, which is now reflected in the financial reports. Companies have hence realised the need of reducing their emissions and look for environment friendly industrial options.
Another financial instrument called carbon offset credit has also been created with almost the same objective in mind. One carbon offset represents the reduction of one metric ton of carbon dioxide or an equivalent in other greenhouse gases. The decrease is most of the times attained by using cleaner and renewable forms of energy such as tidal and wind energy.
A carbon offset is purchased just as carbon credits to offset the extra emissions of that specific company over and above the allotted caps for compliance to the regulations. Carbon offset is available to governments, companies and even the common man who can offset their carbon footprint through it. This helps in promoting and financing decrease in emissions and furthering eco-friendly efforts of production of energy.
The carbon credit system was a direct result of the need to check emissions and protect the environment. Through the well known Kyoto protocol, an agreement among over 170 countries, it was decided to set limits on emissions of greenhouse gases by every member country. The fixed limits are then used by the country's government for allocating quotas to various industrial and commercial entities of how much emission they are allowed.
Through the carbon credits system, the government grants incentives to manufacturing entities that create emissions below the quota, and penalizes those who are not able to do so. One carbon credit is equal to one ton of carbon dioxide emission into the environment. In this innovative scheme, manufacturing units or firms that emit greenhouse gases within the allocated quota can sell carbon credits of an amount corresponding to the difference, on the other hand those units that release more will have to purchase a corresponding amount of carbon credits from the market.
Such global trading of carbon credits is aimed at regulating the overall amount of emissions of greenhouse gases in the air by encouraging lesser emissions by industrial entities. The trading of carbon credits has made emissions an internal cost of doing business, which is now reflected in the financial reports. Companies have hence realised the need of reducing their emissions and look for environment friendly industrial options.
Another financial instrument called carbon offset credit has also been created with almost the same objective in mind. One carbon offset represents the reduction of one metric ton of carbon dioxide or an equivalent in other greenhouse gases. The decrease is most of the times attained by using cleaner and renewable forms of energy such as tidal and wind energy.
A carbon offset is purchased just as carbon credits to offset the extra emissions of that specific company over and above the allotted caps for compliance to the regulations. Carbon offset is available to governments, companies and even the common man who can offset their carbon footprint through it. This helps in promoting and financing decrease in emissions and furthering eco-friendly efforts of production of energy.
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