Trading Carbon Credits
Trading carbon credits may be classified as either offset emissions or emission allowance. In connection with this, there are 3 primary mechanisms that fall under the country’s protocol as well as operators in developed countries can utilize in order to accumulate reduction credits in greenhouse gasses.
3 Mechanisms Involved in Trading Carbon Credits
The first mechanism in trading carbon credits is the JI or also called as joint implementation. This is the mechanism that will allow operators in a developing country having high greenhouse gas reduction cost to get an access to such credits. This is usually done by means of developing projects intended for the other developed countries.
CDM or also called as Clean Development Mechanism is also one of the three mechanisms concerning trading carbon credits. In this mechanism, the operators in the developed nations are allowed to make sponsorship with some projects in the other countries that are just developing. These are the countries where the greenhouse gas reduction cost is lower but the effects are just similar to the first country. In this mechanism, dual benefits are present. To the developed nations, they are getting credits. On the other hand, the developing country is benefited by the investments in terms of clean technology.
The final and third mechanism is called IET or International Emissions Trading. Nations with shortfall may give it a hit in covering themselves by means of trading carbon credits internationally. Based from the protocol, nations having capped emission commitments can purchase from nations that have surplus credits.
The general objective of trading carbon credits is to motivate companies from different places around the world to reduce or limit the emissions of their greenhouse gasses. Those companies that are exceeding when it comes to their caps have the option to sell the unutilized credits to the market or to the other companies directly. Those companies who do not exceed in their cap are given with appropriate reward. On the other hand, those companies who are exceeding the cap are given the ample penalty that is due them.
The reward-penalty system imposed is somehow a motivational tool in order for companies to make proper action when it comes to maintaining the right level of carbon cap. Just in case all of the companies from across the globe will look upon this strategy, there will definitely be decrease in the effects that the world will suffer from greenhouse gasses.
Advantages of Trading Carbon Credits
Generally, there are so many benefits that you can get out of trading carbon credits. Initially, companies can do their share in preserving the condition of the ozone layer. Because of the release of some greenhouse gases, these make the ozone layer becomes thinner and thinner. Thus, it results to heating of the world because of the penetration of the excess sunlight.
People may also benefit from trading carbon credits. In connection with the aforementioned benefits, trading carbon credits has become a very profitable investment opportunity.
Some of the larger investment banks such as JP Morgan, Morgan Stanley, Goldman Sachs and Barclays Capital, have already established Trading Carbon Credits departments and have made considerable carbon credit investments.