For ages, mankind has been making use of fossil fuels for consumption in all sorts of endeavours as the main source of energy. However, these fossil fuels emit greenhouse gases such as carbon dioxide and methane, which adversely affect the environment. High accumulation of these greenhouse gases in the air is causing the phenomenon of global warming, with serious damage to the planet.

With the objective of reducing the emissions and protecting the environment, the idea of carbon credits was brought into existence. Through the famous Kyoto protocol, an agreement reached by over 170 countries, it was decided to set limits on emissions of greenhouse gases by every member nation. The fixed limits are then utilized by the country’s government for allotting quotas to various industrial and commercial entities of how much emission they are permitted.

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. One carbon credit is equal to one ton of carbon dioxide released into the environment. Under the scheme, the entities which release above the limit have to purchase an equal amount of carbon credits for excess emissions from the global trading market and units that are under the prescribed emission levels can sell an equivalent amount of carbon credits for the difference between their quota and there emissions.

Such carbon credits transactions encourage lower emissions and thereby help reduce uncontrolled emissions of greenhouse gases in the air. The trading of carbon credits has made emissions an internal cost of running a company, which is now also included in the financial results. Companies have hence realised the need of reducing their emissions and find environment friendly business options.

Another financial tool called carbon offset credit has also been created with almost the same objective in mind. A carbon offset credit is equivalent to decrease of one metric ton of CO2 or equivalent greenhouse gas in the air. The reduction is mostly achieved by making use of cleaner and renewable forms of energy such as solar and wind energy.

A carbon offset is bought by firms or other organizations to balance the emissions that are above their allocated quotas as per the rules. Carbon offset is open for governments, organizations and even the common man who can balance their carbon footprint through it. This helps in promoting and funding reduction in emissions and furthering eco-friendly efforts of generation of energy.

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