What is a Carbon Credit?

The Kyoto Protocol established that as each country produces CO2, it must be must be able to contain that output by planting trees or other methods of CO2 absorption (changing farming practices). Trees naturally absorb the greenhouse gas, so more trees means less pollution in our atmosphere. If a country cannot plant more trees, then it must reduce the amount of emissions in the first place. However, if a nation cannot perform any of these mitigating measures it can purchase “absorption ability” from other nations – which is where the Carbon Credits come in.

A carbon credit is a new currency equal to one Tonne of CO2 (measurements called CO2 equivalents or CO2e). A nation might have trouble absorbing a million Tonnes of CO2, so they must purchase these from another nation that has been planting trees, etc. The cost of credits can range from $10-$40 US. (Ironically, the US did not enter the Kyoto Protocol because of relations with China and India. However, California, Illinois and certain businesses have sought personal involvement in Carbon Credits). Theoretically, this model would set a limit for all emissions produced worldly and nations would have to buy or sell Carbon Credits to justify that limit.

The advantages of Carbon Credits are that they level the playing field for many nations. In some locations, limiting the amount of emissions can be very expensive and unrealistic. Rather than putting their country in debt, they can purchase credits from a nation that hasn’t reached their quota yet. This can also be a disadvantage in that it promotes a mentality of buying credits rather than fixing the pollution problem.

Lacking regulations also proves to be a problem for carbon credits. Since there is no governmental regulation that defines “carbon neutral”, many companies can claim that title without actually being neutral. This also lets some companies claim to invest in “environmentally-sound” projects, which may have questionable practices.

With so little regulations, it may become daunting to invest in carbon credits. However, there are some legitimate programs that exist, some of which include:

• WindRoads –This is a private company that accepts contributions which provide donors with genuine certificates. They are a reputable company that prides itself on high standards and traceable accountability. Donations go towards the purchase of specialized Wind Turbine Transport Vehicles (WTTV's).

• Bank of America – Not only are they a formidable leader in banking, they also are renowned for their carbon-reduction strategies. They also recently launched a $20 billion initiative to finance emission-reduction projects, invest in green technology, and facilitate carbon-credit trading.
• The Chicago Climate Exchange (CCX) – Although the US does not have an official claim in the Kyoto Protocol, states like California and Illinois are making their own efforts to offset carbon footprints. The CCX is a U.S. carbon-trading scheme in which companies make a voluntary but legally binding commitment to meet emissions targets.

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