Burning of fossil fuel and several other causes besides which has increased the level of carbon dioxide in the atmosphere. The growing awareness about harmful levels of Greenhouse Gases (GHG) and the resulting Worldwide Warming phenomena, has forced the government authorities and private organizations to implement systems that would help in reducing the amount of carbon dioxide in the atmosphere. In short, we can say that to prevent the Global warming. The carbon credits is one of the mechanism to prevent the more emission of carbon dioxide in atmosphere. Carbon credits primarily help to reduce greenhouse gas emissions into the atmosphere. A carbon credit equals one ton of hydrocarbon fuel as indicated. Through the market mechanism, a high carbon price raises the cost of products according to their carbon content. Raising the price of carbon achieves awareness in consumers about what goods and services are carbon intensive and which should be used more carefully. Carbon pricing helps to educate producers about which energy sources are the most carbon intensive, and thus encourages firms to substitute low-carbon fuels. Pricing carbon provides the market with incentives for inventors and innovators to develop and introduce low-carbon products and processes that can replace the current generation’s technologies.
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Definition
Carbon credits are a cap and trade system that allow carbon emitters to trade carbon permits on an open market, thereby maximizing the efficiency of carbon emissions and mitigation (Sorrel and Sijm,2003). it's also known as an "offset", this is a generic term used to assign a value to a reduction, avoidance or capture of GHG emissions achieved by a certified project. It is equivalent to one metric ton of carbon dioxide equivalent (CO2e). A carbon credit can be used by a business, organization or individual to compensate their carbon footprint by financially rewarding an activity that has reduced or sequestered GHGs, and which also brings other sustainable development benefits.
Emergence
The Kyoto ProtocolThe Kyoto Protocol was initiated by the United Nations Framework Convention on Climate Change and ratified by 181 countries and the European Union as a whole, individual entity in 1997, and was put into effect in 2005. This protocol was proposed by the international community to address and reduce greenhouse gas emissions that have led to global climate change. The Protocol makes it mandatory for commercial entities emitting above the permitted limit of carbon dioxide to cut down their emissions to prescribed levels, or they should buy carbon credits certificates which can be transacted in the market, or alternatively pay a charge for the emissions, which is referred to as carbon tax.
Carbon credits explained
International treaties have set quotas on the amount of GHG countries can produce, which in turn set quotas for businesses. Instruments like carbon credits and carbon offset were introduced in order to improve the scenario by encouraging firms to be more environment friendly in conducting their business. One carbon credit allows one tonne of carbon dioxide or a corresponding amount of other greenhouse gases to be discharged in the air. Businesses that are over their quotas must buy carbon credits for excess emissions, while those below can sell their remaining credits. This exchange of credits between businesses has encouraged carbon trading globally. These credits can be exchanged between businesses or bought and sold in international markets at prevailing market price at two exchanges, namely the Chicago Climate Exchange and the European Climate Exchange. The Multi-Commodity Exchange of India (MCX) may soon become the third exchange in the world to trade in carbon credits. The amount of global emissions can be controlled through the buying and selling of carbon credits in the carbon trading method. It is quite simple and convenient to purchase Carbon Credits from a number of firms, just like any other monetary instrument, as they are traded in an open market. Carbon trading is used when the company's emissions exceed its quota of carbon credits, forcing it to purchase credits from other companies which have spare carbon credits. As a result, the worldwide carbon emissions stay within permissible levels, and the companies come up with ecologically sustainable ways of conducting business .The system also motivates the organisations to be more eco friendly so that they can increase their earnings by selling carbon credits. As carbon credits are freely traded in the market, they make it very easy for businesses to follow the system. There are no complexrules or procedures to adhere to, which enhances their acceptance and makes the system highly ④successful. Carbon credits can also be purchased even if you are not a part of any organisation in order to lower your own carbon footprint. The money that you put in this manner is routed to fund ecological projects in any region on the planet so that the emissions made as a result of your activities can be neutralized. This sale and purchase in carbon credits helps limit the unchecked emissions of greenhouse gases throughout the world. Organizations responsible for atmospheric pollution are made to pay for their acts while ones taking positive steps are rewarded.In the present scenario, the market of carbon credits has a direct impact on the firm's financial analysis. This has caused firms to actively seek ways to decrease their emissions and adopt cleaner ways of doing business. Thus, the whole system motivates companies and governments to promote environment friendly processes that reduce greenhouse gas emission. Carbon trading, also referred as emissions transacting, it is a joint effort designed to limit the amount of carbon that businesses, organizations and other entities produce over a specific period of time. The ones who are selling are companies that use clean technology and those buying are the world’s polluters. In future, the menace of global warming can be effectively handled by this system.
India in carbon trading
India is emerging as a serious player in the global carbon credits market. This has prompted originator, developer and trader of carbon credits, to set up office in India. Carbon credit is very emerging domain now a days especially in India but very few corporate are aware of this emerging segment. At present it is quite essential to create awareness about this business segment .As, India’s GHG emission is below the target and so, it is entitled to sell surplus credits to developed countries. India is considered to claim about 31% of the total world carbon trade.
Conclusion
In today's scenario Global Warming is costing a lot of money, so Green Environmentalist aims to promote policy and business that works for the environment. As we all know, carbon dioxide, the most important greenhouse gas produced by combustion of fuels, has become a cause of global panic as its concentration in the Earth's atmosphere has been rising alarmingly. This has created an opportunity for the trade of carbon credits both within and outside of the regulated area, thereby creating a global ⑤"carbon market". In this system of carbon trading, controls are imposed on Green House Gas (GHG) emissions under the Kyoto Protocol, and the pre-decided emission limits are then allocated across countries, which have to control the greenhouse gas emissions from the various industries and commercial units operating within them.
Global Climate Action- UNCC
IPCC Climate change 2007