What are Carbon Credits?

The concept of carbon credit trading was developed as a result of the Kyoto Protocol ratification and seeks to encourage countries to reduce their GHG emissions.  It rewards those countries which meet their targets and provides financial incentives to other countries to do so as quickly as possible.  Surplus credits collected by countries exceeding their emission reduction target can be sold in the global market. 

One credit is equivalent to one tonne of CO2 emission reduced.  Carbon Credits (CC) are also created from project proponents or companies engaged in carbon sink projects such as forestation, or developing renewable energy products that offset the use of fossil fuels.  In countries where GHG is below the target fixed by the Kyoto Protocol norms they are entitled to collect and sell surplus credits to developed countries not meeting their reduction limits.

It is here that European Union Allowances (EUAs), Certified Emissions Reduction Units (CERs) and Emission Reduction Units (ERUs) trading takes place.  Companies or installations that cannot fulfill the new reduction target limits can buy the surplus or allocated credits from other companies, installations or project proponents through trading. 

Emission’s trading takes place utilizing a growing number of Institutions and purchasers who act as brokers, such as EcoSecurities, Natsource, CO2e, Shell, Merrill Lynch, Barclay’s Capital, World Bank and the European Bank for Reconstruction and Development (EBRD) or on an increasing number of exchanges including the European Climate Exchange, Powernext (France), Nord Pool Power Exchange (Norway), Germany’s EEX and the Chicago Climate Exchange.  There is also a sizable direct bilateral market and a fast growing Voluntary Market for carbon trading.