Fossil fuels have been extensively used as the main source of energy for a lot of decades now in all kinds of industries as well as for individual use. However, emission of greenhouse gases like methane and carbon dioxide is caused by fossil fuels, which is very hazardous for the environment. The emissions have led to an ever rising accumulation of these hazardous gases in the air, leading to global warming, which can be destructive for earth.

The idea of carbon credits was born out of our need to reduce the emissions and protect the environment. The well known Kyoto protocol witnessed over 170 national representatives agreeing upon standard limits on greenhouse gas emissions in their respective countries in a phased manner. The nation’s administration then uses the agreed limits and assigns quotas to manufacturing units, laying down the amount of emissions they are permitted to make.

By means of the carbon credits concept, the market grants incentives to manufacturing entities that create emissions below the quota, and penalizes those who fail to do so. One ton of carbon released in the air amounts to one carbon credit, according to its definition. Under the scheme, the units which release above the limit have to purchase an equivalent amount of carbon credits for such emissions from the worldwide trading market and entities that are under their allocated emission levels can sell a corresponding amount of carbon credits for the disparity between their quota and there emissions.

Such carbon credits trading motivate lesser emissions and thereby decrease uncontrolled emissions of greenhouse gases in the environment. Companies are forced to pay for leaving behind their carbon footprints under the carbon credits policy, and this now has a significant impact on their financial results. This has caused companies to actively look for means to reduce their emissions and opt for greener ways of doing business.

Another financial tool called carbon offset credit has also been created with a similar objective in mind. A carbon offset credit is equal to decrease of one metric ton of CO2 or corresponding greenhouse gas in the atmosphere. The decrease is usually attained by using greener and renewable forms of energy such as solar and wind energy.

A carbon offset is purchased by companies or other organizations to balance the emissions that are above their allocated quotas as per the defined regulations. Individuals, governments and organizations can all buy it voluntarily as well to balance their carbon footprint. Thus, they are able to support and provide funds for the decrease in greenhouse gases and to encourage cleaner forms of energy generation.

Learn more about Carbon Credits and Carbon Offset and get a deeper understanding on how you can help in saving the environment.