The greenhouse gases in the earth's atmosphere possess different Global Warming Potentials (GWP). Carbon dioxide is assigned a GWP of one and serves as a base for calculating the potential of all other greenhouse gases. The idea of carbon trading began to spread after the Kyoto Protocol was signed by almost 180 countries back in 1997. Since then, carbon trading has remained at the center of all efforts designed to prevent rapid climate change. Firms and industries purchase carbon credits and are permitted to emit a greenhouse gas, usually carbon dioxide, in an amount that does not exceed a ton.

Upon utilizing all carbon credits acquired, firms may purchase more because achieving a rapid reduction in carbon emissions is not feasible for some firms. The process is slow and requires several years before the firm finally manages to emit the greenhouse gas in the amount permitted. Many firms may achieve the desired target earlier than the rest. At the end of a certain period, they may even have surplus carbon credits that they can sell to another party. While the credits are tradable in public and private markets, their prices may vary mainly because of the market trend of supply and demand.

A large percentage of the population has now become aware of the change in climate taking place due to human activities, and even a larger percentage realizes the need to mitigate this change with their efforts. Carbon trading is thus an initiative to help large industries and firms cut down their emissions in order to lessen their impact on the global climate. The firms ultimately benefit from carbon trading as they move towards sustainability while contributing to a common cause. Even carbon credits are of two kinds: the first is where a firm can voluntarily work to reduce its greenhouse emissions, and the second is the type regulated by the United Nations (UN).

Member nations of the UN are issued a certificate that permits them to emit a greenhouse gas in a specified amount. These types of credits are called Certified Emissions Reduction or CER. Economies are then bound to set targets and limit their emissions to set a good standard for future projects. On the other hand, Voluntary Emissions Reduction or VER are efforts undertaken voluntarily by firms. Choosing this type of emissions reduction allows a firm to act without being bound to regulations. The trading trend is shifting towards voluntary credits as economies invest in processes and technologies that generate low carbon amounts.

Voluntary Carbon Standards (VCS) are simple standards that serve as a base for voluntary reductions in emissions. For the emissions to qualify as carbon credits, the VCS ensure that:

·       Reductions in emissions have taken place.

·       All emissions are quantifiable and irreversible.

·       Emissions are lower than they would be in another case.

·       A certified party verifies the carbon units.

Therefore, now that it has become evident that climate change is happening at an unparalleled rate, immediate action is necessary at the individual and collective levels. A reduction in carbon footprint is a matter of concern for all, whether an individual or a business. The efforts companies make in this regard are more noticeable and valued as many of them are large emitters of greenhouse gases.

About the Author: Zainab Imran is fond of writing and always interested to write about the environment, climate, and sustainable development.