Carbon credits are a key component of national and international emissions trading schemes that have been implemented to mitigate global warming. We provide a way to reduce greenhouse effect emissions on an industrial scale by capping total annual emissions and letting the market assign a monetary value to any shortfall through trading.
Credits can be exchanged between businesses or bought and sold in international markets at the prevailing market price. Credits can be used to finance carbon reduction schemes between trading partners and around the world.
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 off setters 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. This is reflected in their price; voluntary units typically have less value than the units sold through the rigorously-validated Clean Development Mechanism.
Human activities are generating a set of heat trapping gases (greenhouse gases) which due to their long atmospheric residence times form a heat retaining blanket over the earth. It is generally accepted that fossil fuel combustion contributes to global CO2 emissions (a greenhouse gas emission). The global community acknowledges this important issue and is committed to taking action through The UNFCCC & the Kyoto Protocol. The Kyoto Protocol establishes three flexible mechanisms which allow Annex 1 (Developed) Countries to achieve part of their emission reductions commitments externally through;
- Clean Development Mechanism (CDM) in non-Annex 1 countries.
- Joint Implementation (JI) in other Annex 1 countries.
- International Emission Trading (IET) between Annex 1 countries.
Objectives of the CDM defined in Article 12 of the Kyoto Protocol are;
- Contribute to sustainable development in Non-Annex 1 (Developing) Countries,
- Contribute to the ultimate objective of the UNFCCC: the mitigation of climate change.
- Assist Annex 1 countries in complying with their emission reduction commitments.
The host party is responsible for screening CDM projects and can theoretically exclude those not consistent with its sustainability, economic development or social criteria. CDM projects earn CERs which when sold earns additional returns on the project investment thus increasing the revenue stream of sustainable projects while transferring clean technology know-how to non-Annex 1 countries.