What are Carbon Credits and How are They Traded?
A carbon market allows companies or individuals to buy and sell the right to emit carbon into the atmosphere.
Carbon credits are certificates issued by the government, allowing the holder to emit a certain amount of carbon dioxide (1 credit = 1,000 kg of CO2).
Trading occurs when firms or individuals sell their unused carbon credits to others who need them.
The price of carbon credits is determined by market forces: supply and demand.
Carbon offsets can also be traded, where a business buys offsets (like tree planting) to counteract its own emissions.
Why Do Corporations Not Want Government Involvement in Carbon Credit Issuance?
Corporations prefer a market-driven approach where they can trade carbon credits freely, rather than having the government set fixed limits.
They argue that government-imposed limits could lead to output restrictions or higher costs.
Large companies prefer flexible trading systems that allow them to purchase credits from others, helping them balance emissions more efficiently.
Who Introduced the Concept of Carbon Credits?
The concept of carbon credits was introduced in the 1990s in the U.S. under the cap-and-trade system to control sulfur dioxide emissions.
This idea was later extended to carbon dioxide emissions.
Why Are Some Experts Critical of Carbon Offsets?
Critics argue that carbon offsets may be used for virtue signaling, with companies buying credits just to appear environmentally responsible, without ensuring actual reductions in emissions.
Some worry that governments may over-issue carbon credits, making them too cheap, and failing to reduce emissions effectively.
There are concerns about cheating within the system, like companies illegally exceeding emissions limits or not following through on promised environmental projects.
Experts also question how governments can determine the right number of credits, as politicians may make decisions that slow down economic growth for the sake of stricter emissions cuts.
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