Since time immemorial, humans have been making use of fossil fuels for consumption in all types of endeavours as the primary source of energy. However, release of greenhouse gases like methane and carbon dioxide is caused by fossil fuels, which is quite harmful for the environment. Rising levels of emissions have led to a very high level of concentration of these gases in the atmosphere, resulting in global warming, which is threatening life on earth.

With an aim of reducing the emissions and safeguarding the planet, the idea of carbon credits was introduced. The well known Kyoto protocol saw over 170 national representatives agreeing to fix standard caps on greenhouse gas emissions in their respective nations in a phased manner. The set limits are then used by the country’s government for allotting quotas to different industrial and commercial entities of how much emission they are allowed.

Through the carbon credits concept, the government grants incentives to manufacturing entities that keep emissions less than the quota, and penalizes those who are not able to do so. By definition, one carbon credit is equivalent to one ton of carbon dioxide emitted in the atmosphere. In this novel system, manufacturing units or companies that emit greenhouse gases within the prescribed quota can sell carbon credits of an amount corresponding to the difference, whereas those units that release more will have to buy a corresponding amount of carbon credits from the market.

International trading of carbon credits focuses on minimization of greenhouse emissions by its ‘reward and penalty’ mechanism, and promotes a cleaner environment. Companies are forced to pay for leaving behind their carbon footprints under the carbon credits policy, and this now has a significant effect on their financial results. Therefore firms are striving to keep their emissions within allowed limits and adopt eco-friendly business options.

Another emission controlling financial strategy is the carbon offset credit, which serves a very similar purpose. A carbon offset credit is equivalent to reduction of one metric ton of CO2 or equivalent greenhouse gas in the atmosphere. This CO2 decrease is achieved by using renewable and eco-friendly forms of energy like solar and wind energy.

Like carbon credits, a carbon offset is purchased to make up for the emissions that go beyond the prescribed limits for a company so that it is able to conform to the emission regulations. Companies, governments and even individual people can buy carbon offset to offset their excess carbon footprint. This helps in encouraging and funding reduction in emissions and advancing eco-friendly efforts of generation of energy.

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Tags: business, business management consulting, Carbon Credits, carbon emission, carbon information, carbon management, carbon offset, Environment, marketing

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