Carbon credits and carbon trading are common topics for debates and discussions on environmental issues, but a majority of us are not completely acquainted with these concepts. In the system of carbon trading, controls are put on greenhouse gas emissions under the Kyoto Protocol, and the prescribed emission limits are then allocated across countries, which have to control the greenhouse gas emissions from the various industries and commercial units operating within them.

National governments and industries are assigned limited quantities of carbon credits to regulate 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 thousand kilos of carbon dioxide discharge. This basically means that high-emission industries can buy carbon credits from low-emission industries, thereby keeping the net global emissions within the prescribed cap.

The key advantage of carbon trading is that it results in a scenario where organizations tending to go beyond their emission limits have to pay a substantial sum to do so, as they have to purchase carbon credits from the world market. However, this is a reciprocal trade where selling and buying of carbon credits are done simultaneously by low and high emission companies. Hence the overall economy does not get affected at all, while organizations with environment friendly processes make higher profits. This inspires organizations to adopt eco-friendly alternatives, and slowly the global level of greenhouse gas emissions comes down.

Free trade of carbon credits on stock exchanges enables greener energy and process usage of an organization to be incentivised and capitalized, whether the company is a small one or a large one. The trading mechanism means that the advantages to efficient companies are immediate and substantial. Moreover, the entire idea has also been expanded to countries, there would always be encouragement to reduce emissions from the national governments to local companies, which is a great advantage as a lot of governments are usually blamed for absence of initiative on environment.

However, there are a few people who support other schemes like carbon tax, which rather than incentivising the greener companies, will penalize those who have extra emissions. There is much speculation over the efficacy of such systems.

Till date no other system has been able to efficiently handle the issue of carbon emissions in a better way than carbon trading. The carbon trading business has witnessed remarkable growth in the past few years, and this evidences beyond doubt that the system is impactful.

Learn more about Carbon Credits and Carbon Trading to get a deeper understanding on how you can help in saving the environment.