What is carbon credit? Please explain.?

Answer 1

Carbon credits are a key component of national and international emissions trading schemes. They provide a way to reduce greenhouse gas emissions on an industrial scale by capping total annual emissions and letting the market assign a monetary value to any shortfall. Credits can be exchanged between businesses or bought and sold in international markets at the prevailing market price.

There are also many companies that sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint on a voluntary basis. These carbon offsetters purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects. The quality of the credits is based in part on the validation process and sophistication of the fund or development company that acted as the sponsor to the carbon project.

Answer 2

A carbon credit is a way to assign a quota system for how much carbon dioxide is released into the atmosphere, and to help reduce this release by letting producers sell or buy credits on the open market.

Let's say power plants are allowed to produce 1 ton of CO2 for every 1 kilowatt of power. (I don't know if this is a reliable number, I just pulled it out of thin air) If the plant produces 100 Kw in a year, they can release 100 tons of CO2. If the plant has clean-burning technology that allows them to release only 90 tons of CO2, they have 10 tons of carbon credit. The plant can sell this credit to someone who produces 100 Kw, but releases 110 tons of CO2. Those that don't have credits for the CO2 they release will pay a fine.

The net result is that, on average, the power plant industry as a whole is still producing only 1 ton/Kw of power.

The open market will set the value of the carbon credit. If it's cheaper to buy scrubbers to remove the CO2 than it is to buy the carbon credits, the dirty plant will buy hardware, until the price of the carbon credit comes down. If the credits are cheaper, they will be bid up in price until they match the hardware.

The government can force plants to invest in more scrubbers by simply reducing the # of credits that they will grant in a year. If they allow 1800 lbs of CO2 to be released for every 1 Kw of power, the plants will have to get more efficient, or buy more credits, or pay more in fines.

Here's the fun part: environmental groups can guy the carbon credits, but not use them. This effectively reduces the amount of CO2 that the industry as a whole can release, thus requiring them to get cleaner, or face fines.

Answer 3

That is the greatest invention Gore ever had! Guess who makes a profit from investing in his own carbon credit scheme...yep, Gore again. He can use more electricity, fly in private jets, etc. But because he pays into a company he holds stock in and claims it offsets his carbon print, everyone thinks its all good. The whole idea is ludicrous.

Answer 4

Dont really understand it but the website below gives you an explanation of it.

Answer 5

Carbon Credit :
Studies on climate change have underscored two points. First that atmospheric commons, namely the Earth’s carbon absorbing capacity, is finite and depletable and that growth of GHG emissions, even at their present level pose a threat to humankind.

Secondly, it has been established that per capita GHG emission is strongly correlated with economic prosperity. Further, it is recognized that without increase in GHG emissions or access to appropriate alternative technology options, developing countries would not be able to pursue their socio-economic goals. Kyoto Protocol is a global cooperative attempt to address both these issues.

Kyoto Protocol
In December 1997, the Third Conference of Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC) adopted the Kyoto Protocol. The protocol requires developed countries (listed in Annex 1 of the protocol) to limit their Greenhouse Gas (GHG) emissions to individual targets, resulting in on an average 5.2% reduction in the GHG emission from their 1990 emission levels, in the commitment period 2008-12. The protocol for the first time in the evolving climate change regime, provided for legally binding emission commitments by annex 1 parties. The protocol covers six main Greenhouse gases CO2, CH4, N2O, Hydroflorocarbons, Perflorocarbons and Sulphur Hexafluoride. The protocol provided three Co-Operative Implementation Mechanisms (CIMs) to enhance flexibility and to facilitate development of cost effective means of achieving the targets. These mechanisms are Joint Implementation and Emission Trading, both of which are co-operative mechanisms applicable to Developed Countries (Annex 1 countries) only. Clean Development Mechanism (CDMs) provides for co-operation between Annex 1 countries and non annex 1 (developing) countries.

Clean Development Mechanisms (CDMs)
CDMs are of particular interest to developing countries, as it provides for investment in projects in developing countries for their sustainable development, while generating GHG abatements that may be transferred to the annex 1 countries towards meeting their targets under Kyoto Protocol. CDMs address, latter of the two realizations discussed at introduction above, pertaining to providing alternative technological options and incentives to developing countries, to pursue their socio-economic goals but with lesser climate change impacts.

The operational mechanism of CDMs involves an investment by a legal entity from an Annex 1 country in a project in Non Annex 1 country, which results in emission reductions. The investment decision would include an agreement between the two parties and their respective countries on the dispensation and transfer of the emission reductions resulting from the project. These emission reductions have to be certified by an appropriate authority (the CDM Executive Board, provided for under the protocol) and then these certified Emission reductions (CERs, commonly known as carbon credits) can be used to meet Annex 1 commitments under Kyoto Protocol.

A project activity will be eligible for consideration as a CDM project if it is aligned with the national needs and priorities and contributes to the sustainable development of the host country. Further, the projects must fulfill the following criteria.
a) Voluntary participation by each party involved i.e it is not driven by any regulatory compliance requirement;
b) Real measurable and long-term benefits related to mitigation of climate change effects.
c) Reduction of emissions that are additional to any that would occur in the absence of the project activity in question i.e. the Sponsor would not have undertaken the project in a business as usual scenario and that in undertaking the project, the sponsor has overcome barriers that may be related to investment, common practice/prevalence or technology or other barriers.
d) The activity must ensure access to environmentally sound technology needed by the developing country.

Broadly, projects that contribute to credible and sustained reduction in GHG emissions qualify as CDM projects. The following broad categories of projects have been recognized as CDM projects.
a) Renewable Energy Projects (Solar Power, Wind Power, Biomass based power,
small hydel etc);
b) Fuel substitution ( e.g. coal to oil to gas to hydrogen in Power Plants, Manufacturing Process Industries, automobiles etc);
c) Energy Efficiency improvement and waste heat utilization projects;
d) Other project activities that reduce anthropogenic emissions by sources;
e) Carbon sequestration projects (Forestry etc.);
f) Management of methane emissions from municipal landfills;
g) Management of methane emissions from agriculture and cattle manure management; and
h) Fuel shift from liquid fuel to CNG/LPG in the transport sector.

The manner of transfer of CERs will depend on the nature of agreement between the contracting parties. Some of the preferred modes adopted in various cases include:
a) Investment by an entity from one of the annex 1 country directly in a project, in lieu of the CERs that are expected to accrue therefrom.
b) The entity enters into agreement to purchase CERs from a developing country entity or access the open market, as and when they are required to meet certain commitments.
c) Many annex 1 governments are floating tenders for procurement of CERs
d) There are multilateral institutions like the World Bank and IFC, who have been engaged by annex 1 country governments and private sector corporations to purchase carbon credits (CERs) on their behalf. The World Bank group has nearly US$ 1.06 billion of such funds for buying CERs. Similarly, there are other funds set up by EBRD, JBIC and some governments.
e) Some of the MNCs and large corporates are themselves buying carbon credits.
f) CDM provides for banking of CERs, wherein the emission reductions prior to 2008 may be banked for use in the commitment period in 2008