Carbon Credit
What is a Carbon Credit?
A carbon credit is a tradable permit or certificate that allows the holder to emit one tonne of carbon dioxide (CO₂) or an equivalent amount of other greenhouse gases (GHGs).
- 1 carbon credit = 1 tonne of CO₂ or CO₂-equivalent (tCO₂e)
- It is used in carbon trading markets as part of efforts to limit global emissions.
How Are Carbon Credits Earned?
An organization or industry earns a carbon credit when it emits one tonne less of CO₂ (or equivalent gases) than the emission cap or standard limit set for its operations.
This surplus can be converted into a credit and either:
- Used for its own future emissions, or
- Traded or sold to another entity that needs to offset excess emissions.
How Do Carbon Credits Help?
Carbon credits play a key role under the Kyoto Protocol—a global climate agreement under the United Nations Framework Convention on Climate Change (UNFCCC).
Companies in developed countries, which are obligated to meet strict emission targets, have two options:
- Reduce Emissions Directly
- Adopt clean technologies
- Upgrade existing systems to meet emission norms
- Offset Emissions Through Developing Countries
- Invest in eco-friendly projects in developing nations (e.g., renewable energy, waste management)
- In return, earn carbon credits generated by these sustainable initiatives
- A portion of these credits can then be transferred back to the company’s home country to meet its emission limits
Developing Countries and the Carbon Market
Developing countries such as India and China are becoming leading suppliers of carbon credits, while European nations are the major buyers.
- In a recent year, global carbon credit trade was valued at $95 billion, with India contributing around $5 billion.
- China dominates the market, holding approximately 75% of the global carbon credit share.
Carbon Trading in India
- Carbon is now treated like any other tradable commodity.
- The Multi Commodity Exchange (MCX) of India became the first exchange in Asia to facilitate carbon credit trading.