Updated on March 13, 2023
Carbon Credit is a world wide credit system which has evolved over a period of time to check emission levels and reduce carbon footprint. The primary aim of Carbon Credit system is to check pollution levels and global warming by corporations across the world. Carbon Credit is a certification issued by an authorized agency which regulates the emission of CO2 or other similar gases, over a specified period of time. In case it crosses the set limit, the company gets penalized, while companies with low emissions get credits.
How does the concept of Carbon credits work?
One Carbon Credit is equal to one tonne of Greenhouse gases. Carbon credit is basically an ‘emission allowance’ up to a certain limit, beyond which the company will be penalized.
Companies which get Carbon Credits for reduction in emissions can sell or trade these credits with other companies.
As per the 2015 Paris agreement, the target across world is to reduce greenhouse gases and their overall impact to the environment and hence the Carbon Credit system assumes greater importance.