What are Carbon Credits?

Carbon credits are a product of the movement toward greater environmental consciousness and pollution control. The basic premise behind the carbon credit states that industries which create a certain amount of pollution in the form of carbon dioxide (CO2) emissions should counter this pollution by doing environmentally sound things, such as planting trees. If corporations are unable to carry out these environmentally friendly tasks using their own employees and resources, they can buy carbon credits that allow the corporation to produce one metric ton of CO2 for each carbon credit purchased.

In an effort to control global warming and the pollution caused by greenhouse gases, carbon credits have become an international standard of operation for industry. Every corporation and individual creates a certain amount of CO2 pollution. This industrial pollution is called the carbon footprint.

The governments of many countries have placed strict limits on the emission of CO2 and have developed a program where the individual countries issue a set number of carbon credits to industries as part of the Kyoto Protocol. Companies that produce large amounts of CO2 often buy carbon credits from more efficient companies that will not use all of their allotted carbon credits. In addition to buying carbon credits from other companies, some corporations will also trade carbon credits in exchange for products or services. This global market is often referred to as cap-and-trade, or emissions trading.

In countries where strict enforcement of carbon emission standards are not already in place, the regulation of carbon and other greenhouse gases is handled on a voluntary basis. As of early 2011, the United States had not signed the Kyoto Protocol. Despite this, many corporations in the U.S. voluntarily take part in programs designed to reduce carbon emissions. This voluntary participation has proven to be a wise decision as consumers have demonstrated approval of this measure.

With worldwide awareness of global warming and greenhouse gases, many people have begun to take a look at their own daily lives and how their personal carbon footprints affect the environment as well. Every individual produces a certain amount of pollution as a byproduct of their activities and purchases. Although individuals are not yet required to purchase carbon credits, carbon offsets are becoming popular among those in environmentally minded circles. A whole industry has been created for environmentally conscious people to purchase products and services that offset their personal carbon output.