Carbon credits have been a hot topic in recent news. Both China and the EU have put forward new carbon plans recently. Both plans involve carbon credits, but what are they? Are they a currency, documents, or actual pieces of carbon?
A Carbon Credit is an allowance for a company holding the credit to emit carbon emissions or greenhouse gases. A single credit equals one ton of carbon dioxide to be emitted or the mass equivalent to carbon dioxide for other gases. Companies hold many credits, as many as they wish to purchase to balance out their emissions.
Why can’t companies just stockpile carbon credits?
There are two characteristics of carbon credits. Excess credits are sold by companies to recoup finances and the amount of credits a company can hold is capped. These points encourage companies to sell their excess credits to other companies, as excess credits will result in fines.
How does one create a carbon credit?
Credits are created when a project is deemed to have eliminated 1 ton of greenhouse emissions. Planting a forest that would eliminate 1 ton of carbon emissions would be enough to create a credit. Credits do however decay over time which means companies continually need to create new ideas to remove emissions.
Many companies also specialize in trading and investing in credits. They will buy credits from large companies and resell them to whoever may need those credits. As the price of carbon continually rises, so too does the value of the credits.