CARBON CREDITS – FUTURE MARKET

I. Introduction

Carbon credits are an instrument that represents ownership of one ton of Carbon Dioxide (CO₂) equivalent that can be traded, sold, or discarded.

According to the Environmental Protection Agency (EPA), one ton of carbon dioxide is equivalent to the emissions generated from about 4023,36km (2,500 miles) driven by an average passenger vehicle or the consumption of 513,71L (113 gallons) of gasoline or about 499kg (1,100 pounds) of burned coal, on fire. One ton of emissions equals one month of an individual’s average annual carbon emissions.

II. Origin and general characteristics

• The US Clean Air Act of 1977 created one of the first tradable emissions offsets. This allows a facility to increase its emissions by buying the emissions of another company whose emissions are lower than the prescribed level. Some characteristics of carbon credits:Classic: Classic is the year in which a carbon emission reduction project generates carbon offset credits. This is usually done after a third party verifies the project. This may be done by a validation authority, a designated operational entity, or accredited third-party evaluators.
• Project type: many projects can be used to reduce greenhouse gas emissions. These can include land use, methane capture, biomass sequestration, renewable energy, industrial energy efficiency, etc.
• Co-benefits: in addition to reducing greenhouse gas emissions, projects can also bring benefits such as ecosystem services or economic opportunities to communities near the project area. These benefits of the project are called “Co-benefits”.
• Certification regime: describes the systems and procedures used to certify and register carbon offsets and credits. These differ in terms of governance and accounting methods, project eligibility, environmental integrity, and sustainable development requirements as well as Monitoring, Reporting, and Verification procedures ( MRV).
  Carbon Retirement: Offset credit holders must “retire” carbon offset credits to claim their associated greenhouse gas (GHG) reductions toward a specific greenhouse gas reduction target. In the voluntary market, carbon offset registries determine how to retire.

[REFERENCE]

1. https://carbonfund.org/everything-you-need-to-know-about-carbon-credits/
2. https://en.wikipedia.org/wiki/Carbon_offsets_and_credits