CARBON CREDITS

Carbon credits create a market for reducing greenhouse emissions by giving a monetary value to the cost of polluting the air.Emissions become an internal cost of doing business and are visible on the balance sheet alongside raw materials and other liablities or assets.

By way of example,consider a business that owns a factory putting out 1,00,000 tonnes of greenhouse gas emissions in a year.Its government is an annex 1 country that enacts a law to limit the emmisions that the business can produce so the factory is given a quota of say 80,000 tonnes per year.The factory either reduces its emmissions to 80,000 tonnes or is required to purchase carbon credits to offset the excess.

And a carbon credit seller may have already invested in new low emission machinary and have a surplus of allowances as a result.The factory could make up for its emissions by buying 20,000 tonnes of allowances from them.The cost of the seller,s new machinery would be subsidized by the sale of allowances.Both the buyer and the seller would submit accounts for their emmissions to prove that their allowances were met correctly.