ENVIRONMENT AND TECHNOLOGY

CARBON CREDITS

THEORY

Carbon Credits

Definition of 'Carbon Credit'

Carbon Credit is a permit that allows the holder to emit one tonne of carbon dioxide. Credits are
awarded to countries or groups that have reduced their green house gases below their emission quota.
Its goal is to stop the increase of carbon dioxide emissions. For example, if an environmentalist group
plants enough trees to reduce emissions by one ton, the group will be awarded a credit.
Scenario:
A manufacturing unit produces 20 tonnes of carbon where the permissible limit of the company to
produce carbon is 25 tonnes in a year. So the company earns 5 carbon credits. Now company has a
greater production target in the subsequent year where it is expected that 30 tonnes of carbon will be
generated where the permissible limit remains 25 tonnes. In such a case the company can sell previously
earned carbon credits and now the company remains with no carbon credits.