CARBON CREDIT

Amidst growing concern and increasing awareness on the need for pollution control, the concept of carbon credit came into vogue as part of an international agreement, known popularly as the Kyoto Protocol. Carbon credits are certificates issued to countries that reduce their emission of GHG (greenhouse gases) which leads to global warming. It is estimated that 60–70 per cent of the GHG emission is through fuel combustion in industries like cement, steel, textiles, and fertilisers. Some GHGs like hydro fluorocarbons, methane, and nitrous oxide are released as byproducts of certain industrial process which adversely affect the ozone layer, leading to global warming.

The concept of carbon credit trading seeks to encourage countries to reduce their GHG emissions, as it rewards those countries which meet their targets and provides financial incentives to the others to do so as quickly as possible. Surplus credits (collected by overshooting the emission reducing target) can be sold in the global market. One credit is equivalent to one tonne of CO2 emission reduced. Carbon Credit (CC) is available for companies engaged in developing renewable energy projects that offset the use of fossil fields.

The trading of CC takes place on two stock exchanges, the Chicago Climate Exchange and the European Climate Exchange. CC trading can also take place in the open market as well. European countries and Japan are the

major buyers of carbon credit. Under the Kyoto Protocol, global warming potential (GWP) was an index that allowed for the comparison of greenhouse gases with each other in the context of the relative potential to contribute to global warming. For trading purposes, one credit is considered equivalent to one tonne of CO2 emission reduced.