Carbon Credit

Carbon Credit

Subject : Environment

Section : Climate Change

Context: Nurture. farm’s rice project generates 20,000 carbon credits

What Is a Carbon Credit?

• A carbon credit is a permit that allows the owner to emit a certain amount of carbon dioxide or other greenhouse gases. One credit permits the emission of one ton of carbon dioxide or the equivalent in other greenhouse gases.
• Countries that pollute are awarded credits that allow them to continue to pollute up to a certain limit. That limit is reduced periodically. Meanwhile, the countries may sell any unneeded credits to another company that needs them.

Significance of Carbon Credit

• Carbon credits were devised as a mechanism to reduce greenhouse gas emissions.
• Companies get a set number of credits, which decline over time. They can sell any excess to another company.
• Carbon credits create a monetary incentive for companies to reduce their carbon emissions. Those that cannot easily reduce emissions can still operate, at a higher financial cost.
• Carbon credits are based on the “cap-and-trade” model that was used to reduce sulfur pollution in the 1990s.

Background

• The United Nations’ Intergovernmental Panel on Climate Change (IPCC) developed a carbon credit proposal to reduce worldwide carbon emissions in a 1997 agreement known as the Kyoto Protocol. The agreement set binding emission reduction targets for the countries that signed it. Another agreement, known as the Marrakesh Accords, spelled out the rules for how the system would work.
• Kyoto protocol was revised in 2012 in an agreement known as the Doha Amendment, which was ratified as of October 2020, with 147 member nations having “deposited their instrument of acceptance”.
• Negotiators at the Glasgow COP26 climate change summit in November 2021 agreed to create a global carbon credit offset trading market.

What does the Kyoto protocol say on emission reduction?

The Kyoto Protocol aims to limit or reduce the greenhouse gas emissions by three market-based mechanisms – emissions trading, clean development mechanism and joint implementation.

1. Emissions trading– An advanced country “A” can acquire emission units from an advanced country “B” for meeting a part of their emission reduction target.
2. Clean development mechanism– An advanced country can implement emission reduction projects in a developing country to earn certified emission reduction (CER) credits which can be traded to achieve their reduction targets.
3. Joint implementation– An advanced country “A” and an advanced country “B” may take part in an emission-reduction project and count the resulting emission units towards meeting its Kyoto target.

What is Article 6 of Paris agreement?

• Article 6 of the Paris Agreement introduces provisions for using international carbon markets to facilitate fulfilment of Nationally Determined Contributions (NDCs) by countries.
• Article 6.2 provides an accounting framework for international cooperation and allows for the international transfer of carbon credits between countries.
• Article 6.4 establishes a central UN mechanism to trade credits from emissions reductions generated through specific projects.
• Article 6.8 establishes a work program for non-market approaches, such as applying taxes to discourage emissions.