Commercial and individual use of fossil fuels to generate energy has been widespread for several decades around the world. However, emission of greenhouse gases like methane and carbon dioxide is caused by fossil fuels, which is very harmful for the environment. Rising levels of emissions have led to a very high level of accumulation of these gases in the atmosphere, resulting in global warming, which is threatening life on the planet.

The idea of carbon credits came into existence out of our necessity to reduce the emissions and save the planet. Through the well known Kyoto protocol, an agreement reached by more than 170 nations, it was decided to set limits on emissions of greenhouse gases by every member country. The country’s administration then utilizes the agreed limits and prescribes quotas to manufacturing units, laying down the quantity of emissions they are permitted to make.

In order to encourage industries and other organizations for releasing lesser than the quota and to punish those who emit more, the idea of carbon credits was developed. By definition, one carbon credit amounts to one ton of CO2 emitted in the atmosphere. In this novel scheme, manufacturing units or firms that release greenhouse gases within the prescribed quota can sell carbon credits of an amount equivalent to the difference, while those units that release above the limit will have to buy an equivalent amount of carbon credits from the market.

Such global trading of carbon credits is aimed at regulating the net quantity of emissions of greenhouse gases in the air by incentivizing lesser emissions by industrial entities. Companies are required to pay for leaving behind their carbon footprints under the carbon credits policy, and this now has a huge effect on their financial performance. This has caused companies to actively seek ways to decrease their emissions and opt for greener ways of doing business.

Another emission controlling financial scheme is the carbon offset credit, which serves a very similar objective. A carbon offset credit is equal to decrease of one metric ton of CO2 or corresponding greenhouse gas in the air. The decrease is mostly achieved by using cleaner and more sustainable forms of energy such as solar and wind energy.

A carbon offset is bought just as carbon credits to offset the excess emissions of that particular organization over and above the allocated caps for compliance to the regulations. Carbon offset is open for governments, companies and even an individual who can balance their carbon footprint through it. Hence, they are able to assist and provide funds for the reduction in greenhouse gases and to encourage sustainable forms of energy generation.

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