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Carbon Credit Glossary Explained Simply
Carbon Credit Glossary Explained Simply
It can be intimidating to comprehend carbon credits. Words like “carbon registries,” “offsets,” “compliance markets,” and “Article 6” frequently sound complex and technical. But in essence, carbon credits are a useful instrument created to lower greenhouse gas emissions and fight climate change.
In order for businesses, students, policymakers, and sustainability experts to effectively navigate the carbon market ecosystem—particularly given the expanding carbon market landscape in India—this extensive dictionary provides clear explanations of important carbon credit words.
A Carbon Credit: What Is It?
One metric tonne of carbon dioxide (CO₂) or its equivalent in other greenhouse gases is reduced or removed from the atmosphere to create a carbon credit.
A business may receive carbon credits if it lowers emissions through energy efficiency improvements, tree planting, or renewable energy investments. Other businesses wishing to offset their emissions can purchase these credits.
Carbon markets, which are in place to promote emission reductions worldwide, are where carbon credits operate.
Market for Compliance Carbon
Government laws dictate how a compliance market functions. Businesses must have enough carbon allowances or credits to match their emissions and are legally obligated to cut emissions.
Compliance markets include, for example:
- EU ETS, or the European Union Emissions Trading System
- Cap-and-Trade Program in California
In order to comply with international climate commitments, carbon trading mechanisms in India are changing under national climate policy frameworks.
Market for Voluntary Carbon (VCM)
To offset their emissions, businesses and people can purchase carbon credits on the voluntary carbon market. Organizations take part to fulfill net-zero aims, ESG pledges, and sustainability goals; there is no legal requirement.
As businesses embrace climate responsibility policies, this industry is growing quickly both in India and internationally.
Offset of Carbon
An action that makes up for emissions from other sources is called a carbon offset.
For instance, a business can “offset” its emissions by purchasing 1,000 carbon credits produced by a wind farm or forest conservation project if it emits 1,000 tonnes of CO2.
Offsets finance reductions elsewhere but do not remove emissions at their source.
GHGs, or greenhouse gases
Several greenhouse gasses are covered by carbon credits, such as:
- CO₂, or carbon dioxide
- CH₄, or methane
- Oxygen nitrous (N2O)
- Gases that are fluorinated
To standardize measurements, each gas is transformed into CO2 equivalent (CO2e).
Emissions of Net Zero
To achieve net zero, greenhouse gas emissions must be balanced with an equal amount extracted from the atmosphere.
As part of the Paris Agreement, numerous nations pledged to achieve net zero.
India has accelerated the establishment of domestic carbon markets and climate policies by announcing a long-term net zero aim.
The Paris Agreement’s Article 6
A framework for international carbon trading between nations is provided by Article 6. In order to help achieve climate goals, it enables one nation to sell carbon reductions to another.
Future global carbon markets, particularly prospects for Indian carbon credit projects, are anticipated to be greatly influenced by Article 6.
System for Trading Emissions (ETS)
A cap-and-trade system is an ETS. The government allots allowances and caps overall emissions. Businesses that cut emissions can sell extra permits to third parties.
The biggest example of an ETS is the European Union Emissions Trading System.
As part of its national sustainability initiatives, India is creating the frameworks for its own carbon trading program.
Types of Carbon Credit Projects
Certain initiatives are the source of carbon credits. Typical project kinds consist of:
- Renewable Energy Initiatives
Projects using wind, solar, hydro, and biomass lessen reliance on fossil fuels.
- Planting and Replanting Trees
Restoring forests and planting trees remove CO2 from the atmosphere.
- Initiatives for Energy Efficiency
Upgrading equipment or systems to use less energy.
- Capturing Methane
Obtaining methane from agricultural practices or landfills.
- Projects Using Blue Carbon
Preservation of coastal ecosystems, wetlands, and mangroves.
Carbon Credits’ Future
Over the next ten years, the carbon credit ecosystem is anticipated to grow considerably because of:
- Net-zero pledges
- Global collaboration on climate change
- Enhanced corporate climate initiatives
- Enhanced criteria for verification
Carbon markets will probably be essential to funding emission reductions worldwide as the urgency of the climate crisis increases.
Concluding remarks: Carbon Credit Glossary Explained Simply
Carbon credits are economic instruments influencing the worldwide transition to sustainability, not only environmental ones. Even though the jargon may seem complicated, each idea has a distinct function in guaranteeing accountability, transparency, and quantifiable climate impact.
People and organizations can participate in carbon markets with confidence, support climate goals, and help create a lower-carbon future by being aware of this carbon credit dictionary.
Carbon credits will continue to be an essential part of India’s green growth plan as the nation fortifies its climate pledges and sustainability frameworks.
Businesses and stakeholders can better prepare for the climate economy of the future by knowing the language of carbon finance today.