What are carbon credits? Can you explain with an example?

 Carbon credits are certificates awarded by the UNFCCC (UN Framework Convention on Climate Change) to countries that have succeeded in reducing emissions An emission permit (the right to emit one ton of carbon dioxide) is alternatively known as a carbon credit. Numerically, one carbon credit equals one ton of carbon dioxide.

These certificates are tradable i.e. they can be traded in the commodity market. India's MCX (Multi Commodity Exchange) launched the first carbon credit trading in Asia.

How to earn carbon credits?

If a company/organization produces one tonne of carbon dioxide equivalent less than the permitted carbon emission standard level, a carbon credit is earned.

For example, if a company is allowed to emit only 500 tons of carbon dioxide in the "Carbon Credit Token," and it emits only 450 tons, it earns 50 carbon credits. But, if that company emits more, say 550 tonnes, then there are two ways/options to reduce emissions-

1. Adopts energy-efficient technology

2. Or it can tie up with developing countries to help technology upgradation (through technology transfer). Thus companies in developing countries will emit less, earning credits for themselves. This credit becomes a permit for the company to emit gas in its own country. Thus, the company can continue to emit 550 tonnes if it helps reduce other emissions.

Who decides how much is allowed to be emitted?

The Kyoto Protocol, an international agreement signed by the world's nations cryptocurrency exchange online, legally binds Annex I countries (mostly developed countries) to reduce their greenhouse gas emissions to 5.2% below 1990 levels within a commitment period of 2008-12. Therefore, such countries have set emission norms for companies/organizations to limit emissions.

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