CARBON CREDIT TRADE

Last Updated on 14th November, 2024
3 minutes, 38 seconds

Description

Disclaimer: Copyright infringement not intended.

Context:

The global carbon market gets a green signal at COP29 under the Paris Agreement's Article 6.

What is Carbon credit trade?

Carbon credits are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases (GHGs). One credit allows the emission of one ton of carbon dioxide or the equivalent of other greenhouse gases. Carbon credits are also known as carbon allowances.

The ultimate goal of the carbon credit system is to reduce the emission of GHGs into the atmosphere.

How Do Carbon Credits Work?

The United Nations allows countries a certain number of credits, and each nation is responsible for issuing, monitoring, and reporting its carbon credit status annually. Governments allow companies to emit a set amount of GHGs before needing to purchase credits.

About Article 6 of the Paris Agreement:

Purpose of Article 6

Provides principles for voluntary cooperation among countries to meet climate targets.

Allows the transfer of carbon credits earned from reducing greenhouse gas emissions.

Sub-sections

Article 6 comprises two sub-sections: Article 6.2 and Article 6.4.

Article 6.2

Allows countries to trade emission reductions/removals through bilateral or multilateral agreements.

Traded credits are called Internationally Transferred Mitigation Outcomes (ITMOs), measured in CO2 equivalent (CO2e) or other metrics.

Article 6.4 (Paris Agreement Crediting Mechanism)

Aims to create a global carbon market overseen by a UN body called the Article 6.4 Supervisory Body (6.4SB).

Credits under this mechanism are called A6.4ERs and can be bought by countries, companies, or individuals.

Current Status

The agreed standards were proposed at the meeting of the Supervisory Body for Article 6.4 held in Baku last month.

About Credit and Offset

Credits

Offsets

Measurement unit to "cap" emissions (permissible emissions).

Measurement unit to "compensate" for emissions by investing in green projects.

Generated through carbon reduction projects.

Generated through investments in green projects (nature-based or technological).

Can be traded on carbon markets.

Can be monetized on carbon markets.

Can come from nature-based (e.g., reforestation) or mechanical (e.g., renewable energy) solutions.

Can be generated from nature-based initiatives (e.g., reforestation, wetland rejuvenation) or mechanical solutions (e.g., renewable energy, direct carbon capture technologies).

Used to cap or reduce total emissions to a specific limit.

Used to compensate for emissions by removing or reducing them elsewhere.

READ IN DETAIL HERE

Carbon Credits Market

Joint Carbon Crediting Mechanism

Climate Offsetting

What breaching the 1.5-degree Celsius warming threshold 

Source:

THE HINDU

PRACTICE QUESTION

Q.Carbon credit trade has emerged as a significant tool in combating climate change. Discuss the mechanism of carbon credit trading, its benefits, challenges, and the role of developing countries in this global market. (250 words)

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