Carbon Credit

What is a Carbon Credit?

Carbon credit refers to the permission that a business gets to emit an amount of carbon dioxide and other greenhouse gases. One credit allows the emission of mass equal to one ton of carbon dioxide. The aim of carbon credit is to reduce carbon dioxide emission in order to aid the environment that is subject to global warming because of industrial activities.

Regulatory authorities and government set a limit for the emission for companies. Carbon credits are traded through the private and public Market. The prices are driven on the Basis of the supply and demand in the markets. The prices of the credit are bound to fluctuate because the supply and demand in different countries are varied.

Carbon Credit Trading

A carbon credit is beneficial for society, but when it comes to investment, an average investor may find it a challenge to use it as an investment vehicle. The CER can only be used as an investment in the credits. Please note that CERs are sold through special carbon funds that are established by large institutions. European Climate Exchange, European Energy Exchange, NASDAQ OMX Commodities Europe Exchange, etc., specialise in trading these credits.

Types of Carbon Credit

There are two types of carbon credit. They are mentioned below:

1. Voluntary Emissions Reduction (VER)

In this case, a third-party certifying body does not regulate. The carbon Offset is exchanged in a voluntary market for credits.

2. Certified Emissions Reduction (CER)

A third-party certifying body regulates the CER. It is created with the aim of offsetting the project’s emissions.