Carbon Credits

What is it ?
Carbon credits are a highly regulated medium of exchange used to 'offset', or neutralize, carbon dioxide emissions.

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A single carbon credit generally represents the right to emit one metric ton of carbon dioxide or the equivalent mass of another greenhouse gas.

Larger companies, governments and other entities may be required by law to purchase carbon credits in order to emit greenhouse gases. This in some sense sets a limit on the amount of pollution a company is allowed to emit within a period of time. If the company stays under the limit, it can sell the remainder of its carbon credits to other companies.


Relation with Carbon Emission

"If you emit more , you have to spend more on purchase of carbon-credits"


In the case of mandatory carbon credits, the goal of placing a value on carbon emissions is to induce carbon credit purchases to choose less carbon-intensive activities.


Reducing the amount of emission leads to saving the amount of carbon credits. Companies that emit less enjoy higher profits by selling their rights to produce carbon dioxide emissions (carbon-credits). The saved credits can be sold to others and in this way they serve the purpose (everybody will obviously like to reduce the emission so that he need not purchase the carbon-credits ) 
This way, emissions become just as integral a cost of doing business as materials.


Where does the money spent for purchase of carbon-credits goes ?

 In the voluntary market, carbon offsets are used to fund projects which absorb or eliminate an amount of carbon dioxide gas that is equal to the amount emitted.
When consumers purchase carbon credits from reputable carbon offset providers, the money is used for specified projects like planting forests, which absorb carbon naturally, or diverting methane gas for conversion into electricity at a power plant.