Greenhouse gas emissions, owing to deforestation, burning fossil fuels, and farming cause global warming. Several factories and industrial sectors emit large amounts of CO2 and other harmful gases from energy use in their operations. They generate energy by burning coal, diesel, and petrol. Global pressure is mounting on businesses to bring down greenhouse gas emissions.
Some heavy industries like chemicals, steel, and cement find decarbonizing, for it is not economically workable. Purchasing carbon credits can assist in offsetting the carbon emissions that are being released into the environment for industries that find it difficult to lower emissions.
How Do Carbon Credits Work?
As a market-based mechanism, carbon credits are developed to lower greenhouse gas (GHG) emissions. Companies purchase these valid emission reductions from approved climate action projects or programmes that work on controlling, bringing down, and eliminating GHG emissions. A carbon credit is measurable in tones of CO2, wherein one metric ton is one carbon credit. This tradable permit or license acts as a tool for controlling pollution.
The governments of several nations have banded together to cut greenhouse gas emissions as soon as possible by establishing caps. Organizations that cannot instantly bring down their GHG emissions can consider purchasing carbon credits to fulfil the emission cap. It helps them to act to safeguard the earth from climate change and global warming in the process.
You can offset your carbon footprint and contribute to the funding of climate change initiatives by purchasing carbon credits. The amount of greenhouse gases equivalent to one metric tonne of CO2 are purportedly reduced or removed from the atmosphere when you purchase one carbon credit. If you do not exceed the set limit of pollution, you get credits. Nevertheless, the cap is reduced annually.
In case you don’t need the carbon credits you received, you can trade them to a company, which needs them. The carbon offset helps encourage companies, particularly private companies. Such companies can either keep and use them or resell them for money. On lowering CO2 emissions or acquiring carbon offsets, they are given more carbon credits, which can be used to fund future initiatives.
Trading Carbon Credits
When it comes to trading carbon credits, you will find markets, both public and private, allowing international credit transfers. Determined by the supply and demand across the world, carbon credit prices can change. However, they cannot be used as an investment vehicle by small investors because major financial institutions generally sell certified emission reductions (CER) via specialised carbon funds. However, you can find carbon markets and exchanges that exclusively trade in carbon credits.
By investing in initiatives that lower emissions in developing countries, businesses in developed nations can offset their carbon emissions through the market-based system called a carbon credit trading programme. It’s designed to be a substitute for legislative restrictions on greenhouse gas emissions.
Reasons to Buy Carbon Credits
You should purchase carbon credits if you are aware of the harm being done to the environment. You can contribute to an environmental initiative by purchasing credits even though your small business lacks the time or finances to do so. Besides, the environmental initiatives are approved by a third party, which guarantees to bring down GHG emissions and preserve the environment.
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Project Marketplace
You can purchase premium carbon credits for particular projects on this marketplace. With Natural Climate Solutions (NCS) tailored to address their particular sustainability issues, SMEs find the project marketplace an ideal platform to trade credits.
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Carbon Exchange
Large quantities of high-quality carbon credits are sold to businesses and institutional investors at the carbon exchange. For example, Climate Impact X, also known as CIX, has opened an international exchange in Singapore, where standardised contracts are used to trade premium carbon credits.
