A carbon credit is a permit or certificate allowing the holder to emit carbon dioxide or other greenhouse gases. The credit limits the emission to a mass equal to one ton of carbon dioxide. The issuance of carbon credits aims to reduce the emission of greenhouse gases into the atmosphere. It is also called as emission permit.
Carbon credits are created in many ways –
- Sequestration:- it means capturing or retaining CO2 from atmosphere like afforestation
- CO2 saving projects like use of renewable energies.
It is the outcome of KYOTO protocol which creates legally binding emission targets foe developing nations to limit CO2 emissions,
It creates market by providing monetary values to the cost of polluting the air. It is seen like other inputs like raw material or labor where the credits can be exchanged between businesses and brought and sold in the international markets at prevailing market price.
Renewable energy like wind farms, geothermal, biomass energy as well as methane capture from landfills create carbon credits by displacing the fossil fuels.