Reviewed by Aug 27, 2020| Updated on
What is Carbon Credit?
A carbon credit is a permit that allows the holding company to release a certain amount of carbon dioxide or other greenhouse gases. One load requires a mass equal to one ton of carbon dioxide to be released.
The carbon allowance is one half of a "cap-and-trade" scheme. Polluting companies are awarded credits which allow them to continue polluting up to a specific limit. The business can, meanwhile, sell any unneeded credits to another company that needs them.
Therefore, private companies are doubly motivated to minimise carbon emissions. If they surpass the limit, they'll be fined. By saving and reselling some of its pollution permits, they can make money.
Breaking Down Carbon Credit
Carbon credits primarily help to reduce greenhouse gas emissions into the atmosphere. A carbon credit equals one ton of hydrocarbon fuel as indicated. In terms of carbon dioxide emissions, that's the equivalent of a 2,400-mile trip, according to the Environmental Defence Fund.
Industries or nations are given a certain number of credits and can exchange them for helping offset total emissions worldwide. "Since carbon dioxide is the principal greenhouse gas," the UN notes, "people speak simply of trading in carbon."
The objective is to reduce the number of credits over time, thus motivating businesses to find creative ways of reducing greenhouse gas emissions.