Carbon credit: what is it and how does it work?
Carbon credit is a certificate that can be traded between countries
Announcements
Have you ever heard of carbon credits?
This concept emerged from the Kyoto Protocol in 1997, with the aim of reducing the emission of greenhouse gases, which cause various environmental damages.
In other words, in practice, each carbon credit represents a ton of carbon that is no longer emitted into the atmosphere, which helps to reduce the greenhouse effect.
To understand more about the subject, continue reading.
History
The credits emerged with the Kyoto Protocol, negotiated in 1997, an international treaty aimed at reducing greenhouse gas emissions.
Although the reduction target is something collective, each nation has individual targets, which could be lower or higher.
The existence of this treaty is entirely related to concerns about climate change, which have been observed in recent years.
It was expected that not all nations would be able to achieve the goals easily. For this reason, flexibility mechanisms were developed within the agreement itself.
It is important to remember that the protocol was only ratified in 2005 and was very important, as it established several goals, which aimed to reduce emission levels.
Source: World Education
What is carbon credit?
The Carbon Credit corresponds to one unit issued by the modality that provides for the reduction of greenhouse gases (GHG)”, known as the Clean Development Mechanism (CDM).
The credits are part of a flexibility mechanism that helps nations achieve their targets for reducing pollutant gases.
Basically, they are considered the currency of the “carbon market”.
For every ton not emitted, a carbon credit is generated.
So, when a country reduces emissions of this ton, it gains certification.
What is the regulation like in Brazil?
In each country, the carbon market is regulated by legislation.
For example, in Brazil, it is regulated through the Decree No. 5,882 of 2006.|1|.
Art. 1. Articles 5, 12 and 16 of Decree 5,025 of March 30, 2004, shall come into force with the following wording:
“Article 5 ……………………………………………….
§ 1 PROINFA also aims to reduce greenhouse gas emissions, in accordance with the United Nations Framework Convention on Climate Change, contributing to sustainable development.
§ 2. It is ELETROBRÁS' responsibility to develop, directly or indirectly, the processes of preparation and validation of Project Design Documents – DCP, registration, monitoring and certification of Emission Reductions, in addition to the commercialization of carbon credits obtained in PROINFA.” (NR)
How are carbon credits traded?
As previously stated, although this market exists all over the world, each country has its own legislation.
But in practice, it is characterized by the sale of carbon credits between a country that has them and a country that needs to reduce emissions but has not yet reached its targets.
Commercialization is carried out through the CDM methods, which consists of developing projects that reduce greenhouse gas emissions.
Furthermore, the CDM allows cooperation between more industrialized nations and developing nations.
If the commercialization is unilateral, the country that holds the credits and that implements the project to reduce gas emissions in its own territory is the one that stipulates the value of the carbon credit.
When commercialization is bilateral, the definition of values is the responsibility of the developed country, which will generate the project in the territory of a host country.
Finally, in the multilateral mode, the values for credit trade are set by the investment funds.
What are the main advantages of carbon credits?
Carbon credits really do have benefits.
After all, they correspond to a ton of carbon dioxide not emitted into the atmosphere. Non-emission is very important for stabilizing the greenhouse effect.
Therefore, they represent an environmental preservation action, which is essential.
The creation of these credits can help countries that are failing to reduce their emissions. Therefore, they can be seen as a way to achieve targets.
Furthermore, developing countries have the opportunity to implement sustainable development projects in their territories. In this way, they can even stimulate the economy through the carbon market.
What are the disadvantages of carbon credits?
Many experts believe that these credits, in one way or another, function as a license to continue polluting the environment.
It is also important to mention that the carbon market moves the economy of several countries and, for this reason, it can be overvalued.
And this overvaluation can bring losses to developing nations, as they often do not have the technology necessary to develop projects that reduce emissions.
BNDES announces first acquisition of carbon credits
The National Bank for Economic and Social Development (BNDES) approved a pilot operation for the acquisition of up to R$10 million in carbon credits.
Initially, at least, acquisitions will focus on titles predominantly of REDD+ (Reducing Emissions from Deforestation and Forest Degradation), Reforestation and Energy origin.
BNDES aims to support the development of a voluntary market to trade bonds, in addition to ratifying quality standards to conduct projects to decarbonize the economy from 2022 onwards.
The purchase of credits will be made through a Public Call for the selection of projects of REDD+, Reforestation and Energy origin.
The purpose is to encourage demand for these developers, who own land with potential for environmental projects.
Furthermore, the operation focuses on the transparency of the initiative, to make credit negotiation attributes more accessible on the market.
According to Gustavo Montezano, president of BNDES, the carbon market is a global trend, in which Brazil is destined to be a reference.
Source: BNDES News Agency
Paris Agreement and the Amazon
The Paris Agreement, which replaced the Kyoto Protocol, is a global commitment to adopt climate policies.
The main objective is to combat the increase in Earth's temperature caused by global warming.
However, forests were left out of carbon credits. The argument used was that the Amazon belongs to Brazil and, therefore, cannot be an object of the international market.
Source: Ecycle
Conclusion
Carbon credits represent a market for credits, which are generated based on the non-emission of greenhouse gases into the atmosphere.
Environmental concerns are increasing and, as a result, more and more companies are thinking about sustainable projects and practices.
