The concept of Carbon credit was

emerged from Kyoto protocol. The Kyoto Protocol operationalizes the United

Nations Framework Convention on Climate Change by committing industrialized

countries to limit and reduce greenhouse gases emissions in accordance with

agreed individual targets. The Kyoto Protocol was adopted on 11 December 1997, it

entered into force on 16 February 2005. Currently, there are 192 Parties to the

Kyoto Protocol. In Doha, Qatar, on 8 December 2012, the Doha Amendment to the

Kyoto Protocol was adopted for a second commitment period, starting in 2013 and

lasting until 2020.

India accepted Kyoto in August 2002 itself. This protocol clearly

states that developed countries have to reduce their GHG emission levels by at

least 5% against the baseline levels of 1990 in five years' time from 2008 to


What is Carbon Credit

A carbon credit is a tradable

permit or certificate that provides the holder of the credit the right to emit

one ton of carbon dioxide or an equivalent of another greenhouse gas. In other words

(as defined by Kyoto protocol), For one Metric tonne of carbon emitted by

burning of fossil fuels Companies are allocated a certain number of credits

that they may use over a period. In case they are burning less then the

allocated amount then they are surplus of the number allocated to them. These

surplus number can be used for trading off and can be sold as per convenience

in global market.

Here it is noted that the one

credit is equivalent to one tonne of Carbon dioxide emission reduced. I.e If a

company has reduced emission of 1 tonne of CO₂ then company can be rewarded

with 1 Carbon credit. This was the primary goal for Kyoto protocol where industrialised

countries agreed to reduce the emission of Greenhouse gases primarily CO₂ to a

certain extent.

Types of Carbon Credits

There are two types of the carbon


Voluntary emissions reduction (VER): A carbon offset

that is exchanged in the over-the-counter or voluntary market for credits. Voluntary

carbon offsetting schemes allow companies of every part of the world to

generate and to commercialize carbon credits, which are equivalent to an

emission reduction of one tone of CO2. As a result of this, companies highly

demonstrate their commitment to reduce greenhouse gas emissions related to the

global warming process. Voluntary emission trading schemes work in line with

the principles defined by UNFCCC in this way, companies are capable to offset

their emissions under an internationally recognized standard.

Certified emissions reduction (CER): Emission units (or Carbon

credits) created through a regulatory framework with the purpose of offsetting

a project’s emission. The main difference between the two is that there is a third-party

certifying body that regulates the CER as opposed to the VER.

The Kyoto Protocol reflects its

signatory countries’ commitment to reducing emissions. Greenhouse gas-emitting

companies are now subject to strict emissions quotas. If they exceed these

quotas, companies can offset their emissions through several flexible


Trading of Carbon Credits

Carbon credits can be traded on

both private and public markets. Current rules of trading allow the international

transfer of carbon credits. The prices of carbon credits are primarily driven

by the levels of supply and demand in the markets. Due to the

differences in the supply and demand in different countries, the prices of the

carbon credits fluctuate.

India and China are likely to emerge as the biggest sellers and Europe

is going to be the biggest buyers of carbon credits. India is one of the

countries that have 'credits' for emitting less carbon and is therefore having

surplus credit to offer to countries that have a deficit







Author: @manaskishor2000@gmail.com