Carbon Credits Explained
The Kyoto Protocol gave rise to the global carbon market in 1997 when, for the first time, carbon credits were introduced as commodity units. Each carbon credit is equivalent to consists of one ton CO2 emissions.
The main purpose of carbon trading is to effectively reduce CO2 emissions by turning them into a commodity and putting them up for exchange onat the international carbon trading market, which operates in a manner similar to any other commodity market.
The monetary value of each carbon credit is determined by the international market environment, where industries emitting CO2 into the atmosphere and green initiatives aimed at capturing or reducing CO2 are key players in determining the supply and demand.
When industries exceed their CO2 emission cap, the demand and, subsequently, price of carbon credits will rise, which will drive private businesses to invest in projects producing carbon credits such as capturing methane, producing renewable energy and preserving forests. Each green project must successfully meet the international criteria and prove its effectiveness in reducing CO2 levels in order to be certified as a carbon credit producer. Once approved, the project will receive a yearly quota of carbon credits where each credit is equal to 1 ton of CO2 emissions neutralized by the project.
