Wednesday, January 13, 2010

Carbon Credits And Its Advantages

By Ronald Morgan

Carbon credits and carbon trading are common topics for debates and discussions on environmental matters, but a majority of us are not fully acquainted with these terms. In the system of carbon trading, regulations are put on greenhouse gas emissions under the Kyoto Protocol, and the pre-decided emission limits are then distributed across countries, which have to regulate the greenhouse gas emissions from the different industries and commercial units operating within them.

National governments and industrial units are allotted fixed number of carbon credits to set a cap on their emission levels, and the credits certify the owner to release a limited amount of CO2 and other gases into the air. One carbon credit is equal to one ton of carbon dioxide emissions. This basically entails that high-emission corporations can buy carbon credits from low-emission organizations, thereby keeping the overall global emissions within the stipulated limit.

This system makes corporations pay a penalty for greenhouse gas emissions that go beyond reasonable limits, and this penalty on them is executed by making purchase of carbon credits mandatory for them. However, both entities selling and purchasing the credits can be found in the carbon credits global market. Thus, the world economy remains stable, while companies least polluting the environment gain financially. This encourages companies to fund green processes as well and eventually the overall greenhouse gases emissions start decreasing.

Free trade of carbon credits on world exchanges enables greener energy and process usage of a company to be incentivised and capitalized, whether the organization is a small one or a large one. The trading system implies that the advantages to efficient organizations are immediate and huge. Moreover, nation-wise allotment of caps makes national governments more actively encourage local businesses to reduce emissions. This in turn enhances the government's image and makes it affirmatively work towards environment conservation, something that is immensely effective in promoting green technologies.

However, there are a few people who support alternative systems like carbon tax, which rather than incentivising the greener organizations, will penalize those who have extra emissions. There is a lot of doubt over the effectiveness of such systems.

So far carbon trading has been most successful as a method and within a short span has been able to successfully address the problem of high carbon emissions. The carbon trading business has witnessed remarkable growth in the past few years, and this proves beyond doubt that the system is effective.

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