Buying and Selling Carbon Credits

 

The buying and selling of carbon credits has become popular with investors, from all over the globe. Many people are finding that there can be huge financial benefits from investing in the carbon market. Carbon credits are now bought and sold in the same way as other commodities. This is much like a stock market trading model. The carbon market is part of the futures market.

The EU was responsible for implementing this trading system. It was pioneered as a fair way to provide a financial incentive, while helping to lower greenhouse gas emissions. At present, 37 countries remain committed to the reduction of greenhouse gas emissions. Within these participating countries’ boundaries, each government imposes a safe cap for greenhouse gas emissions.

Once the specified limit or cap is reached, companies must buy carbon credit certificates to cover the excess in emissions, which they have produced. A carbon credit represents the right to emit 1 ton of carbon dioxide or the equivalent amount of greenhouse gases.

Investing in the carbon market can be done through a broker. A trading account must first be set up, in order to start buying and selling carbon credits. The account must then be funded, with a minimum amount, specified by the individual broker. Most people have found this relatively easy, as no expert knowledge is required. All that is needed is an initial injection of capital.

A company which has a large carbon footprint, continually exceeding the emissions cap will need to buy more carbon credits. This enables them to offset the excess in greenhouse gas emissions, thus lowering their carbon footprint.

Such companies can either opt to use more environmentally friendly methods of production in the future, or buy more carbon credits. Organizations can only produce the amount of greenhouse gas emissions that their carbon credit certificates allow.

Companies who are usually most in need of carbon credits are: multinationals, large businesses and power providers. Such companies not only buy carbon credits to offset excesses in greenhouse gas production, but do so to make their brand seem more environmentally friendly.

More ecologically viable businesses, who have a light carbon footprint, can sell the excess of carbon credit certificates to those who need them. Such projects can include: farming, renewable and natural energy sources or reforestation.

Individual investors, from countries not currently part of the cap and trade scheme, have also reaped the benefits from buying and selling carbon credits. International banks also favor this form of trading. With the world carbon market continuing to grow, it could be worth as much as $2.4 trillion by the year 2020. The market is expected to grow by another 15% by the end of this year.

Further countries have expressed an interest in joining the cap and trade scheme next year. This can only mean further growth in the market. At the G8 summit, world leaders discussed how best to tackle the problem of climate change. It was decided that to stop the effects of global warming by limiting the effects to a temperature 2 degrees above those in 1900 would mean that the world must reduce greenhouse gas emissions by 50% by the year 2050.

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