Since the middle of the 20th
century, environmentalists have been debating ways to cut green house gas
emissions that cause global warming. So, 191 countries came together and signed
an agreement named the Kyoto Protocol on 11th December,1997 with the
notable exception of the United
States of America . Its aim was to bring down
emissions to the levels of early 1990s.
A
mechanism was created under the United Nations Framework Convention on Climate
Change (UNFCCC), a precursor to the Kyoto Protocol, where countries would be
given emission allowances or “points” for prudent management of carbon
emissions. Under the mechanism, standards are fixed by the UNFCCC to determine
the level of carbon emissions to be allowed for an outfit or activity. The extent to which these outfits emit less
carbon, as per the quotas set by UNFCCC, they get points. This is called carbon
credit. One unit of carbon credit is
equal to one tonne of carbon dioxide emitted.
Contrariwise, an outfit exceeding its quota of emissions
would have to buy extra credits from other entities who have excess credits to
compensate the deficit. Thus, this system intends to incentivise environmental
frugality and disincentivise those indulging in wasteful practices.
For example, if a steel company located in Britain emits more carbon than its allotted quota,
it can tie up with SAIL(a steel major in India)
and buy carbon credits either through direct payments or by eco-savvy
technology transfers. It can also buy credits from the open market just like
shares from a stock exchange.
Carbon credits trading vis-à-vis India :
Currently India
earns about $1.5 billion(Rs.7,500 Crores) a year by selling carbon credits to developed regions
such as Europe . This mechanism is turning out
to be a great foreign exchange earner. There is a lot of untapped potential as the
global carbon trade levels are in excess of $6 billion(Rs.30,000 Crores) per annum and growing.
Criticisms:
One major criticism of this system is that it simply
re-allocates excess credits to developed economies thereby allowing them to
maintain same levels of pollutants by paying for it, thus defeating the
fundamental purpose of reducing the level of pollutants.