Since time immemorial, humans have been using fossil fuels for use in all types of endeavours as the main source of energy. However, these fossil fuels release greenhouse gases like carbon dioxide and methane, which cause a lot of harm to the environment. Rising levels of emissions have led to a high level of concentration of these gases in the atmosphere, causing global warming, which is endangering life on earth.
With the objective of decreasing the emissions and safeguarding the environment, the concept of carbon credits was brought into existence. Through the famous Kyoto protocol, an agreement reached by over 170 countries, it was decided to set limits on emissions of greenhouse gases by every member country. The nations' government then uses the agreed limits and assigns quotas to different manufacturing entities, fixing the upper limit of emissions by them so that their business activities do not result in excessive emissions.
Through the carbon credits concept, the government gives incentives to manufacturing units that keep emissions below the quota, and punishes those who fail to do so. One ton of carbon released in the air amounts to one carbon credit, by its definition. In this novel system, manufacturing units or firms that release greenhouse gases below the prescribed quota can sell carbon credits of an amount corresponding to the difference, on the other hand those units that emit more will have to purchase a corresponding amount of carbon credits from the market.
Such global transactions in carbon credits is aimed at regulating the net quantity of emissions of greenhouse gases in the atmosphere by encouraging lesser emissions by industrial units. The market of carbon credits has made firms pay for their emissions, and it now has a direct impact on the firm's financial analysis. Companies have thus woken up to the necessity of cutting down their emissions and look for environment friendly industrial options.
Another emission controlling financial strategy is the carbon offset credit, which caters to a very similar purpose. One carbon offset stands for the decrease of one metric ton of CO2 or an equivalent in other greenhouse gases. Using greener and renewable energy sources like wind and solar energy helps to attain this crucial decrease.
A carbon offset is bought just as carbon credits to offset the extra emissions of that particular organization over and above the allotted limits for compliance to the regulations. Companies, governments and even individual people can buy carbon offset to counterbalance their disproportionate carbon footprint. Their purchase helps in financing the decrease of greenhouse gases and encouraging eco-friendly methods of energy generation.
With the objective of decreasing the emissions and safeguarding the environment, the concept of carbon credits was brought into existence. Through the famous Kyoto protocol, an agreement reached by over 170 countries, it was decided to set limits on emissions of greenhouse gases by every member country. The nations' government then uses the agreed limits and assigns quotas to different manufacturing entities, fixing the upper limit of emissions by them so that their business activities do not result in excessive emissions.
Through the carbon credits concept, the government gives incentives to manufacturing units that keep emissions below the quota, and punishes those who fail to do so. One ton of carbon released in the air amounts to one carbon credit, by its definition. In this novel system, manufacturing units or firms that release greenhouse gases below the prescribed quota can sell carbon credits of an amount corresponding to the difference, on the other hand those units that emit more will have to purchase a corresponding amount of carbon credits from the market.
Such global transactions in carbon credits is aimed at regulating the net quantity of emissions of greenhouse gases in the atmosphere by encouraging lesser emissions by industrial units. The market of carbon credits has made firms pay for their emissions, and it now has a direct impact on the firm's financial analysis. Companies have thus woken up to the necessity of cutting down their emissions and look for environment friendly industrial options.
Another emission controlling financial strategy is the carbon offset credit, which caters to a very similar purpose. One carbon offset stands for the decrease of one metric ton of CO2 or an equivalent in other greenhouse gases. Using greener and renewable energy sources like wind and solar energy helps to attain this crucial decrease.
A carbon offset is bought just as carbon credits to offset the extra emissions of that particular organization over and above the allotted limits for compliance to the regulations. Companies, governments and even individual people can buy carbon offset to counterbalance their disproportionate carbon footprint. Their purchase helps in financing the decrease of greenhouse gases and encouraging eco-friendly methods of energy generation.
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