Is carbon credit the new global currency? All the drawbacks and problems related to currencies like Dollars or Euros are taken care of by the Certified Emission Reduction (CER) credits. It can be traded all over the world and is used by all the major countries more or less in similar proportion.
Its unit, one metric ton of carbon is universally accepted. Moreover, its relevance is understood all over the world. Even if the question is hypothetical (or real?), one thing is for sure―carbon credits have assumed a significance we didn't think of some ten years ago and has caused a visible rift between the industrialized and developing world.
Even if the 'diplomatic' sources don't allow the differences to boil over, this issue has polarized the world after the democracy-communism ideology cold war. With all this interesting background, let us understand what are carbon credits in the real sense.
The concept of carbon credit is very beneficial and easy to understand. This concept was brought to help reduce carbon dioxide, the biggest contributor to greenhouse gases leading to global warming. A carbon footprint of each company or individual or country is measured using various carbon calculators or a central authority is assigned for this purpose.
As per the calculations, a certain number of credits are assigned to each company for a certain period of time. If the company is successful in controlling its carbon emissions under the assigned credit value, it is permitted to sell those credits in the carbon market for monetary gain.
On the other hand, those companies or countries who fail to control their emissions under the required limit, need to purchase these carbon credits as an offset for the extra carbon they emitted. In a nutshell, having one carbon credit permits the holder to emit one ton of carbon dioxide.
Under the Kyoto Protocol, there are three exchange mechanisms for carbon credits―
- Joint implementation
- Clean Development Mechanism (CDM)
- International Emissions Trading (IET).
These mechanisms allow developed countries or companies with high carbon footprints to acquire these credits but all differ according to the clauses of buying and selling them, and aim at achieving carbon neutrality i.e., net zero carbon footprint.
Price of Carbon Credits
One carbon credit (or carbon 'offset') is a closely regulated certificate representing a reduction of one metric ton of carbon dioxide being released into the atmosphere. In dollar terms, the price of carbon credits per ton is about USD 15 to USD 40.
This cost fluctuates on a large scale over the continents and over small intervals and hence, is one of the dangers of the climate change policy. That means, even though the unit 'one ton of carbon dioxide' remains unchanged, the Dollar and Euro equivalent values may not be similar.
The variation in the demand and supply of carbon offsetting keeps the carbon credit price unstable. Often, it is left to individual buyers and sellers to negotiate and determine the current price at any given time. The lack of information on the appropriate prices leaves the buyers and sellers in a dilemma about the timing and expectation of optimum price.
One good thing carbon pricing has done is that it has helped the common people to understand which products induce carbon emissions and hence, should be used sparingly. It also provides incentives for the investors and innovators to produce and invest only in low carbon products, thus benefiting them financially.
Many individuals are taking up this issue as a moral duty and are calculating their carbon footprints to understand and buy the required carbon credits. This trend is rising, but what's needed is global awareness!
Unless the developed countries take this issue seriously and enforce related international laws, the carbon credit concept will not help minimize the emissions considerably. Though many international organizations are working towards the carbon neutrality goal, stringent punitive laws will ensure that global warming is dealt with.
The heavily anticipated Copenhagen Climate Change Conference in 2009 fell flat on its face. Then the Cancun Conference zoomed past without any significant achievement. An expected progress meant for taking the world beyond Kyoto Protocol didn't materialize, and frankly, is nowhere in sight.
The whole world is waiting for the responsible countries to stand up and take action. A catastrophe is waiting to happen alongside. If the global warming issue is not taken care of within a short period of time, the price of carbon credits and buy-sell brouhaha will amount to nothing, and we may be staring at a bleak future.