Companies around the world are under tremendous pressure to reduce their greenhouse gas emissions. For some of them, it cannot be economically viable. When reducing emissions become impossible, buying carbon credits can help offset the carbon emissions they are letting out in the atmosphere.
What are carbon credits?
Carbon credits are market-oriented mechanisms designed to reduce greenhouse gas (GHG) emissions. They are verifiable emission reductions purchased by companies from certified climate action projects, which help reduce, regulate and remove GHG emissions. A carbon credit is a tradable permit to help control pollution, and it is measured in tons of CO2.
The governments of countries around the world have joined to take immediate action to reduce greenhouse gas emissions by setting caps. The companies that cannot reduce GHG emissions immediately can buy carbon credits to conform to the emission cap. In the process, they work towards protecting the planet from the climate crisis.
By buying carbon credits, you help with funding climate action projects, as well as offsetting your carbon footprint. With one carbon credit, you supposedly help reduce or remove one metric ton of CO2 or an equal amount of greenhouse gases from the air. You receive credits if you stay within the limit you are allowed to pollute. The limit gets reduced periodically.
A company that receives carbon credits can sell them to any other company if it doesn’t need them. Companies, especially the private ones, are incentivized with this carbon offset. They can save the credits and resell them to make money. They receive extra carbon credits when they attain carbon offsets or reduce GHG emissions, which they can use to subsidize future projects.
Why Should You Buy Carbon Credits?
If you are conscious of the damage inflicted on the earth’s environment, you should buy carbon credits. Being a small business, you don’t have enough resources or time to invest in an environmental project, but you can be a part of the project by purchasing credits. Moreover, the environmental projects are certified by a third party and they ensure the reduction of GHG emissions and saving of the planet. You are one among a few who pay for the intended outcome.
There are public and private markets to trade carbon credits, and they permit international credit transfers. The prices of carbon credits are subject to fluctuations depending on the levels of demand and supply in countries across the world. Nevertheless, small investors cannot use them as an investment vehicle, for the certified emission reductions (CER) are sold by large financial institutions through special carbon funds. Of course, you can find carbon exchanges and marketplaces that specialize in buying and selling credits.
#1 Carbon Exchange
Carbon Exchange is a platform where high-quality carbon credits on a large scale are sold to mainly institutional investors and companies. For instance, Climate Impact X or CIX has launched a global exchange in Singapore for trading high-quality carbon credits via standardized contracts.
#2 Project Marketplace
On this platform, you can buy high-quality carbon credits for specific projects. SMEs find the Project Marketplace suitable as it offers Natural Climate Solutions (NCS) related to their specific sustainability challenges.
Carbon credits are a feasible, cost-effective solution for companies to regulate and reduce GHG emissions if they find their de-carbonization strategy is not economically viable.