Carbon Credits
Why it Matters?
The EU’s 2040 climate target, allowing limited foreign carbon credits, has sparked concerns over greenwashing and undermining genuine domestic emission reductions.
What You Should Know?
Carbon credits are permits allowing the emission of one ton of carbon dioxide or its equivalent in other greenhouse gases (GHGs).
The system aims to reduce global emissions by putting a price on carbon and encouraging cleaner alternatives.
Cap-and-trade is the model behind carbon credits, where governments cap total emissions and allow companies to trade unused quotas.
Companies that emit less can sell excess credits, while those exceeding their limits must buy additional credits.
The U.S. Clean Air Act (1990) was the first cap-and-trade model, successfully reducing sulphur dioxide and acid rain.
California’s cap-and-trade program (launched in 2013) is among the world’s largest, covering power, industrial, and fuel sectors.
The Kyoto Protocol (1997) and Marrakesh Accords created mechanisms like Certified Emission Reductions (CERs) and Emissions Reduction Purchase Agreements (ERPAs).
Under Kyoto, developed nations (Annex I) could trade surplus credits, and developing nations earned credits via sustainable projects.
The value of carbon credits varies, for example, in 2024, California's credits averaged $42/ton and the EU's $76/ton, influenced by policy and demand.
Companies buy carbon credits to legally emit more GHGs or claim net-zero emissions via offsetting.
Carbon markets create a monetary incentive for firms to cut emissions or invest in green technologies.
Critics argue credits may allow wealthy polluters to avoid real cuts, while supporters highlight their role in global cooperation and financing.
Critics fear a rise in “junk offsets”, credits that lack additionality or measurable impact, potentially diverting funds away from domestic decarbonization.
Note:
Carbon offsets, unlike credits, are voluntary and can be purchased by individuals or businesses to fund green projects like tree planting.