Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697806228483.pdf (India)
A carbon credit is a financial instrument that represents a tone of CO2 or Co2e (carbon dioxide equivalent gases) removed or reduced from the atmosphere from an emission reduction project, which can be used, by governments, industry or private individuals to offset damaging carbon emissions that they are generating.

There are two main markets for carbon credits; 1.)

Compliance Market credits 2.)


Verified Market credits (VERs) The mechanism was formalized in the Kyoto Protocol December 1997, an international agreement between more than 170 countries, and the market mechanisms were agreed through the subsequent Marrakesh Accords.

The mechanism adopted was similar to the successful US Acid Rain Program to reduce industrial pollutants.
Buying carbon credits can reduce emissions Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air.

Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liabilities or assets.

Example, consider a business that owns a factory putting out 100,000 tones of greenhouse gas emissions in a year.
Government then enacts a law that limits the emissions that the business can produce so the factory is given a quota of say 80,000 tons per year.

The factory either reduces its emissions to 80,000 tons or is required to purchase carbon credits to offset the excess.

After costing up alternatives the business may decide that it is uneconomical or infeasible to invest in new machinery.
Instead may choose to buy carbon credits on the open market from organizations that have been approved as being able to sell legitimate carbon credits.

Emission allowances The Protocol agreed ‘caps’ or quotas on the maximum amount of Greenhouse gases for developed and developing countries.

In turn these countries set quotas on the emissions of installations run by local business and other organizations, generically termed ‘operators’.
Countries manage this through their own national ‘registries’, which are required to be validated and monitored for compliance by the UNFCCC.

Each operator has an allowance of credits, where each unit gives the owner the right to emit one metric tone of CO2 or other equivalent greenhouse gas.
Operators that have not used up their quotas can sell their unused allowances as carbon credits, while businesses that are about to exceed their quotas can buy the extra allowances as credits, privately or on the open market.

As demand for energy grows over time, the total emissions must still stay within the cap, but it allows industry some flexibility and predictability in its planning to accommodate this.
By allowing allowances to be bought and sold and operator can seek out the most cost-effective way of reducing its emissions, either by investing in ‘cleaner’ machinery and practices or by purchasing emissions from another operator who already has excess ‘capacity’.

GUJARAT CLEANER PRODUCTION CENTRE ENVIS CENTRE Block No.
11&12,3rd Floor, Udyogbhavan, Sector: 11, Gandhinagar-382017 Gujarat, India Email: gcpc-env@nic.in Website: www.gcpcenvis.nic.in ENVIS E Bulletin [March – April: 2015, Vol: 2 Issue no: 2] CARBON CREDIT Source: http://www.ijsret.org/pdf/carbon_trading.pdf http://www.carbonplanet.com/introduction_to_carbon_cr http:// http://en.wikipedia.org/wiki/Carbon_credit#Emission_allowances en.wikipedia.org/wiki/Carbon_creditedits