How to Finance your Business with Carbon Credits
Carbon credits were created with the objective of fighting greenhouse gases by using market-based instruments. They are the core of the carbon market exchange.
This system, which aims to fight Global Warming, emanates from the Kyoto protocol and is based on the polluter payer principle. It is a market exchange which works the same way as the traditional stock exchange, except that instead of trading stocks companies trade carbon emissions; they can buy or sell them. Its coordination follows the cap-and-trade approach.
To begin with, companies' participation in the trading emissions is voluntary, and once in, the central authorities cap their carbon emissions by giving them a limit. Inside this limit, they count the six greenhouse gases responsible for climate change. If the business lowers its emissions under the limit, it can then sell the difference between the limit and the emissions already used. On the other hand, if it surpasses the limit, it then has to buy additional emissions.
The participant is always encouraged to lower its greenhouse gas emissions. With the opportunity to trade carbon emissions in a market following the supply and demand law, the carbon exchange is able to price a quantity of greenhouse gas emissions, taking normally one tone as measurement.
Trading in the carbon market exchange can be a source of financing for businesses that pollute less, since they can trade their emissions. It can also be a way to finance new equipment that can help reduce pollutants, since direct profit can arise from investing in such technology. Indeed, if you invest in technology that will help you reduce your emissions, you are then also raising the quantity of emissions available for sale if you are under your limit, or reduce the amount of emissions you have to buy if you are over your limit. In both scenarios, it can be beneficial financially. Moreover, the government often helps by providing subsidies to fight greenhouse gases and global warming.
The carbon market manages to diminish the total quantity of carbon emissions by giving businesses an opportunity to improve their profitability. There are national and international carbon exchanges you can join, and it's important to find out which one better suits your company. The criteria will vary depending on which carbon exchange you choose, but normally they require the company to be public.
It is possible, in the case of international trading emissions, to reduce the quantity of greenhouse gases in another country. Since the global problem of climate change concerns the entire planet, reducing emissions anywhere on Earth will have the same impact. In conclusion, you need to consider that by joining the carbon exchange you can potentially not only get additional financing for your company, but are ultimately also helping the ecological balance of the world, and the future.
