Carbon trading

Summary

Carbon trading is a public policy that turns CO2 emissions into an economic commodity. Under this system, governments set emission caps for industrial sectors, and businesses are allocated quotas for CO2 emissions. If a company exceeds its limit, it can buy CO2 credits from others that have reduced emissions below their quotas. For example, a thermal power plant that upgrades its facilities and cuts emissions can sell its surplus CO2 credits to industries like cement factories. This system incentivizes businesses to invest in cleaner technologies while reducing overall greenhouse gas emissions.

Takeaways

• 😀 Carbon trading is a public policy that turns CO2 emissions into an economic commodity.
• 😀 Governments set a cap on the amount of CO2 each industry can emit annually.
• 😀 Industries are assigned individual quotas for CO2 emissions each year.
• 😀 If an industry exceeds its emissions quota, it must purchase additional CO2 credits from others.
• 😀 For example, a company with a 300,000-tonne CO2 limit that emits 360,000 tonnes must buy 60,000 CO2 credits.
• 😀 The company purchasing credits offsets its excess emissions by acquiring CO2 credits from a business that has kept emissions below its quota.
• 😀 A company with surplus credits can profit by selling them to other companies at the current market rate.
• 😀 For example, a power station that upgrades its boiler to reduce emissions can sell its surplus CO2 credits to a company like a cement plant.
• 😀 The sale of CO2 credits provides financial rewards to businesses investing in cleaner technologies.
• 😀 Carbon trading encourages industries to adopt more sustainable practices by making pollution reduction profitable.

Q & A

What is carbon trading?

Carbon trading is a public policy mechanism that turns carbon dioxide (CO2) emissions into an economic commodity. It aims to reduce greenhouse gas emissions by allowing companies to buy and sell carbon credits based on their emissions levels.

How does the carbon trading system work?

The government sets a cap on the total amount of CO2 emissions allowed within each industrial sector. Companies are given individual quotas for emissions. If a company exceeds its quota, it must buy credits from companies that have kept their emissions below their quota.

What happens if a company exceeds its carbon emissions quota?

If a company exceeds its emissions quota, it must purchase additional carbon credits from another company that has emitted less CO2. This allows the excess emissions to be offset.

How do companies generate carbon credits?

Companies generate carbon credits by reducing their CO2 emissions below their allocated quota. For example, if a company invests in cleaner technologies, such as upgrading machinery, it may reduce its emissions and generate surplus credits that can be sold.

What is the role of the government in carbon trading?

The government sets the overall emissions cap for each industrial sector, issues emissions quotas to companies, and establishes a carbon market where credits can be traded. The government aims to reduce overall emissions through this regulatory system.

Why might a company purchase carbon credits?

A company may need to purchase carbon credits if it exceeds its emissions quota, typically because it is unable to reduce emissions as much as required. Purchasing credits allows the company to offset its excess emissions.

Can carbon credits be traded between industries?

Yes, carbon credits can be traded between industries. For example, a cement plant that exceeds its CO2 emissions quota could buy credits from a thermal power station that has successfully reduced its emissions.

What incentives does carbon trading provide to businesses?

Carbon trading incentivizes businesses to invest in cleaner technologies by allowing them to generate surplus credits that can be sold for profit. This can offset the costs of upgrading facilities or adopting environmentally-friendly practices.

How does carbon trading help reduce overall emissions?

Carbon trading helps reduce overall emissions by creating a financial incentive for companies to reduce their emissions. The cap on emissions ensures that the total emissions across industries are limited, while the trading mechanism encourages companies to cut emissions wherever possible.

What is an example of a company benefiting from carbon trading?

An example would be a thermal power station that invests in cleaner technology, such as upgrading its boiler. By reducing its emissions, it generates surplus carbon credits, which it can sell to other companies, like a cement plant, that are struggling to meet their emissions targets.