Carbon credits are certificates that are tradable or a permit which allows emission of one ton of carbon IV oxide to the atmosphere. The permits also allows the emission of any other gas that brings about the greenhouse effect to the equivalent of one ton of Carbon IV oxide. Carbon credits are simply charges for a firm or an industry to pollute the environment. These credits are applications of both national and international policies to regulate the concentration of greenhouse gases in the atmosphere. The main intention of the carbon credits is to set up a cost of pollution. Different industries quantify their carbon IV oxide and other gas emissions which bring about the greenhouse effects and pay for the emission. The industry therefore views the greenhouse gas emissions as a cost. Hence, they reduce the greenhouse gas emissions as much as possible.
Some companies also sell carbon credits to individuals who would wish to lower the carbon emissions on voluntary basis. The proceeds go to assisting in general greenhouse gas emission projects. Carbon credits are also tradable in the carbon market. A company can buy carbon credits at the beginning of the production process. It then invests in other environmental friendly methods of production such as use of green energy to reduce the greenhouse gas emissions. This reduces the costs of carbon credits significantly. In this case, the company can decide to sell its extra carbon credits. The sale takes place in a carbon credits exchange where there is a market price in currency units per ton.
Carbon credits have played a major role in reducing greenhouse emissions. In the recent past, a company could enjoy free emissions which posed a great danger to the environment. Recently, greenhouse emission is a cost which appears on the company’s books. The companies therefore have a motivation to reduce emissions as much as possible by adoption of environmental friendly technologies. This plays a great role in reducing greenhouse emissions and hence a significant reduction in global warming.