Companies that pollute are awarded credits that allow them to continue to pollute up to a certain limit. 

At the 26th session of the Conference of the Parties (COP26) on climate change in the United Kingdom and in many environment forums, carbon credits is one of the issues widely discussed.

But like with most climate change concepts, not many people understand what carbon credits and by extension carbon trading terminologies mean. I will try to shed more light on this and its importance. 

What is a carbon credit?

According to Ivestopedia, a carbon credit is a permit that allows the company that holds it to emit a certain amount of carbon dioxide or other greenhouse gases.

Ivestopedia explains that one credit permits the emission of a mass equal to one tonne of carbon dioxide.

Companies that pollute are awarded credits that allow them to continue to pollute up to a certain limit. That limit is reduced periodically.

Meanwhile, the company may sell any unneeded credits to another company that needs them.

It is worth noting that the United Nations’ Intergovernmental Panel on Climate Change developed a carbon credit proposal to reduce worldwide carbon emissions in a 1997 agreement known as the Kyoto Protocol. 

The Kyoto Protocol divided countries into industrialised and developing economies. Industrialised countries, collectively called Annex 1, operated in their own emissions trading market.

If a country emitted less than its target amount of hydrocarbons, it could sell its surplus credits to countries that did not achieve its targets.

How do they work?

Weforum.org says the underlying theory is simple. If one party can’t stop emitting carbon dioxide, it can ask another to emit less so that, even as the first carries on producing carbon dioxide, the total amount of carbon in the atmosphere is reduced. 

By paying someone else to either reduce their emissions or capture their carbon, companies can compensate for their environmental footprint and even, in the most ambitious cases, use carbon credits to get to carbon-neutral status.

A number of countries have started to tap into these benefits. The Kenya Agricultural Carbon Project involves 60,000 farmers on 45,000 hectares to support farming that is more productive, sustainable, and climate-friendly.

After years of land degradation, many farmers struggled to grow enough food for their families. To change that narrative, they are now using a wide range of methods to increase the organic matter in soils.

In the long term, this should improve the soil’s water absorption, nutrient supply, and biodiversity, and help prevent erosion, making them climate-resilient.

Kenya Forest Service has been on the lead in the promotion of carbon trading in Kenya through financing and the provision of land to community groups in carbon offset projects such as reforestation, an activity that actively removes carbon dioxide from the atmosphere.

Though a noble idea, some critics say carbon trading can be an avenue for money laundering.

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