• Carbon credits defined


    Carbon credits are a key component of national and international attempts to mitigate the growth in concentrations of Greenhouse Gases (GHG). One Carbon Credit is equal to one tonne of carbon equivalents. Carbon trading is an application of an emission trading approach.*

    Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources. The idea is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or 'less carbon intensive' approaches than they would use when there is no cost to emitting carbon dioxide and other GHGs into the atmosphere. Since GHG mitigation projects generate credits, this approach can be used to finance carbon reduction projects between trading partners and around the world.

    There are also companies that sell carbon credits to commercial and individual customers who are interested in lowering their carbon footprint on a voluntary basis. These offset traders purchase the credits from an investment fund or a carbon development company that has aggregated the credits from individual projects. The quality of the credits is based in part on the validation process and sophistication of the fund or development company that acted as the sponsor to the carbon project. This is reflected in their price: Non-CDM or voluntary units typically have less value than the units obtained through the Clean Development Mechanism. **

    There are two distinct types of Carbon Credits:

    • Carbon Offset Credits or COC's: generated by clean forms of energy production, wind, solar, hydro and biofuels.
    • Carbon Reduction Credits or CRC's: generated by the collection and storage of Carbon from the atmosphere through biosequestration (reforestation, forestation), ocean and soil collection and storage efforts.

    Both approaches are recognized as effective ways to reduce the Global Carbon Emissions crisis.

    * In order to have a basis for comparison all Greenhouse Gases are calculated in CO2 equivalents.

    ** Prices are risk-driven: more risk for the seller = higher price whereas more risk for the buyer = lower price. Voluntary market standards try to define quality by setting criteria: the stricter these are the better the quality of the certificate and, therefore, the higher the potential price.

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