🍃Carbon Credits Market
What are carbon credits?
Carbon credits are tradable certificates that allow companies to offset their greenhouse gas (GHG) emissions.
Simply, these certificates help companies or organizations offset their carbon emissions (for example, factories or oil refineries).
How does it work?
Carbon credits act as a financial incentive for companies and individuals to reduce their carbon footprint.
Here's how carbon credits work:
Measurement:
First, the amount of greenhouse gas emissions produced as a result of a specific activity, such as industrial processes, transportation, or energy production, is measured. Companies or individuals measure their carbon emissions using standardized protocols to calculate the amount of CO2 produced. (Source).
Reduction:
After measuring emissions, the company or individual begins to take practical steps to reduce emissions, such as using renewable energy sources or implementing sustainable production processes.
Verification:
Independent third-party organizations verify the achieved emission reductions. They assess the project's compliance with certain standards and methodologies to ensure the accuracy and reliability of the claimed reductions.
Issuance of carbon credits:
When a company's emissions level is confirmed to have been reduced, carbon credits are issued proportionally to the reduced CO2. Each carbon credit represents one metric ton of CO2e that has been reduced or removed from the atmosphere.
Purchase and sale of carbon credits:
Carbon credits can be traded on carbon markets, which allows companies to offset their emissions by purchasing credits from other companies that have reduced their emissions beyond their set limits. The price of credits is set on these markets, which is determined by supply and demand.
Withdrawal from circulation:
After a carbon credit is purchased, it is withdrawn from circulation or canceled, ensuring that it cannot be reused for compensation purposes. This is done to ensure that emission reductions are only counted once.
It is important to note that only 1% of the carbon dioxide that paulownia releases during processing is the carbon dioxide that it absorbed during growth. This makes it the most environmentally friendly tree for carbon credits.
Carbon credit market
The carbon credit market is one of the most important tools in the fight against carbon footprint. According to the report "World Economic Situation and Prospects 2020", the carbon credit market was valued at $215 billion in 2019 and is expected to reach $300 billion by 2030 [Source].
In addition, the U.S. Commodity Futures Trading Commission notes in its report that climate change poses a risk to the financial system. Therefore, companies are encouraged to reduce their carbon footprint as effectively as possible using carbon credits.
Carbon credits help companies offset their carbon dioxide emissions, reduce their environmental footprint, and help achieve ESG goals. [source "Managing Climate Risk in the U.S. Financial System" by U.S. Commodity Futures Trading Commission]
In November 2022, the "Financial Stability Review" noted that the carbon credit market is becoming increasingly important for investors. This is due to the growing interest in sustainable investing, and the carbon credit market provides investors with the opportunity to invest in environmentally friendly projects. [source "Financial Stability Review, November 2022" by the European Central Bank]
To sum up: as the demand for carbon credits grows, investors have many opportunities to participate in this growing market. Carbon credits offer an effective solution for companies to reduce CO2 emissions and greenhouse gas emissions, which are a key factor in climate change. Carbon credits help create a more environmentally responsible world. As the carbon market continues to grow, we can hope for greater reductions in greenhouse gas emissions as more organizations join the fight against climate change.
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