
What exactly are carbon credits?
International treaties such as the Kyoto Protocol (1997) and the Paris Agreement (2015) set global CO2 emissions targets. Except for six countries, the Paris Agreement (2015) has been ratified, and these agreements have resulted in national emissions targets and regulations to support them. Because of these new regulations, businesses now have a greater obligation to find ways to reduce their environmental impact. The majority of current stopgap measures make use of carbon markets by putting a monetary value on carbon dioxide emissions. Carbon markets effectively convert greenhouse gases into a commodity that can be traded. These emissions can be purchased and sold in a carbon credit or carbon offset market. It's not a complicated concept, and it provides a market-based solution to a complex problem.
"Carbon credits" or "carbon offsets" are tradeable certificates that allow you to emit one tonne of CO2 or another greenhouse gas. According to its supporters, the carbon credit system results in verifiable and measurable emission reductions.
So, what exactly is the distinction between "carbon credits" and "carbon offsets?"
Carbon credits and offsets are fundamentally accounting mechanisms. When it comes to environmental pollution, they level the playing field. Credits and offsets are based on the idea that reducing emissions doesn't matter where they happen because CO2 is the same gas everywhere. Individuals and businesses should cut emissions wherever it is cheapest and most convenient to do so, even if it is not where they are directly involved.
Carbon offsets: "carbon sequestration" is the technical term for the process of creating a carbon offset. Carbon sequestration is the practice of storing carbon in natural systems such as oceans, soils, plants (particularly forests), and rocks for long periods of time.
Carbon offsets are also measured in tonnes of CO2-equivalent, but they are created when a company decides to invest in something that reduces greenhouse gas emissions outside of their normal operations, rather than when they emit less carbon than their limit. Carbon projects are what we call these types of investments. Most of the time, but not always, these projects take place in less-developed countries and involve the construction of wind turbines, the assistance of solar farms, or the funding of efforts to protect and replant forests. People who emit carbon can buy "offsets" instead of reducing their own emissions. These offsets, like their credit counterparts, can be bought and sold just like money. However, because the voluntary offset market is largely unregulated, it is critical to understand what you are purchasing. More and more businesses are attempting to go net-zero, and they frequently use carbon offsets for the "last mile," or the emissions that they cannot eliminate.
Carbon Credits: Unlike carbon offsets, carbon credits are something that the government "creates." The government limits the amount of CO2 and other greenhouse gases that a company can emit. Carbon credits can be thought of as money for those tons. To stay within that limit, businesses must either increase their energy efficiency or transition to renewable energy sources. If a company reduces its emissions to below the legal limit, it can sell the excess credits to others who are unable or unwilling to reduce their own emissions to meet compliance.
Stay tuned for part two and three to learn more about: why calculate carbon credits and how to calculate them?
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