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Carbon Credit Trading is a market-based mechanism that helps reduce greenhouse gas emissions. A carbon credit represents the reduction, avoidance, or removal of 1 metric ton of CO₂ (or equivalent greenhouse gases) from the atmosphere.
How Carbon Credit Trading Works?
- Emission Cap: Governments or regulators set an emission limit (cap) for industries to control overall emissions.
- Carbon Credits Created: Projects that reduce or remove emissions generate carbon credits. Examples include renewable energy projects, afforestation and reforestation, etc.
- Credits Verified: Independent agencies measure, report, and verify emission reductions to ensure credibility.
- Credits Issued: Verified credits are issued and recorded in a registry. Each credit equals 1 ton of CO₂ equivalent (CO₂e).
- Trading (Buying and Selling): Companies that exceed their emission limits purchase credits from those that have surplus credits.
- Compliance and Impact: Purchased credits help companies meet regulatory requirements and climate commitments.
Participants in Carbon Credit Trading
- Regulated Companies: Industries such as power plants, manufacturing units, airlines, and cement factories that must comply with emission limits.
- Project Developers: Organizations that implement projects generating carbon credits through emission reductions.
- Traders and Brokers: Intermediaries who facilitate the buying and selling of carbon credits.
- Governments and Regulators: Authorities that establish rules, standards, and monitoring mechanisms.
Where Does Trading Happen?
- Compliance Markets: Credits are traded to meet legally mandated emis