how do carbon credits work 
the ultimate goal of carbon credits is to reduce the emission of ghgs into the atmosphere a carbon credit represents the right to emit greenhouse gases equal to one ton of carbon dioxide that s the equivalent of a 2 400 mile drive in terms of carbon dioxide emissions according to the environmental defense fund 1companies or nations are allotted a certain number of credits and they can trade them to help balance total worldwide emissions since carbon dioxide is the principal greenhouse gas people speak simply of trading in carbon the united nations notes 2the intention is to reduce the number of credits over time thus incentivizing companies to find innovative ways to reduce greenhouse gas emissions u s carbon creditscap and trade programs remain controversial in the united states but 13 states have adopted such market based approaches to the reduction of greenhouse gases according to the center for climate and energy solutions ten of them are northeast states that banded together to jointly attack the problem through a program known as the regional greenhouse gas initiative rggi 3the state of california initiated a cap and trade program in 2013 the rules apply to the state s large electric power plants industrial plants and fuel distributors the state claims that its program is the fourth largest in the world after those of the european union south korea and the chinese province of guangdong 4the cap and trade system is sometimes described as a market system it creates an exchange value for emissions its proponents argue that a cap and trade program offers an incentive for companies to invest in cleaner technologies to avoid buying permits that will increase in cost each year the united states has been regulating airborne emissions since the passage of the u s clean air act of 1990 the act is credited as the world s first cap and trade program although it called its caps allowances 5the program is credited by the environmental defense fund for substantially reducing emissions of sulfur dioxide from coal fired power plants the cause of the notorious acid rain of the 1980s the inflation reduction act is a landmark bill that was signed into law on aug 16 2022 it aims to reduce the deficit fight inflation and reduce carbon emissions the legislation is very focused on cleaning up the environment and it includes a provision to reward high emitting companies that store their greenhouse gases underground or use them to build other products the rewards include significantly expanded tax credits that have increased to 85 from 50 for each metric ton of captured carbon stored underground and to 60 from 35 for each ton of captured carbon that s used in other manufacturing processes or for oil recovery 6it s hoped that these more generous credits will convince investors to make a bigger effort at capturing carbon the tax incentive known as 45q was previously accused of only paying enough to make easy carbon capture projects worth pursuing worldwide carbon credit initiativesthe united nations intergovernmental panel on climate change ipcc developed a carbon credit proposal to reduce worldwide carbon emissions in a 1997 agreement known as the kyoto protocol the agreement set binding emission reduction targets for the countries that signed it another agreement known as the marrakesh accords spells out the rules for how the system would work 7the kyoto protocol divided countries into industrialized and developing economies industrialized countries collectively called annex 1 operated in their own emissions trading market a country could sell its surplus credits to countries that didn t achieve their kyoto level goals through an emissions reduction purchase agreement erpa if it emitted less than its target amount of hydrocarbons the separate clean development mechanism for developing countries issued certified emission reduction cer carbon credits a developing nation could receive these credits for supporting sustainable development initiatives the trading of cers took place in a separate market the first commitment period of the kyoto protocol ended in 2012 8 the u s had already dropped out in 2001 9the kyoto protocol was revised in 2012 in an agreement known as the doha amendment that was ratified as of october 2020 with 147 member nations having deposited their instrument of acceptance 10more than 190 nations signed the paris agreement of 2015 which also sets emission standards and allows for emissions trading 11 the u s dropped out in 2017 under president donald trump but subsequently rejoined the agreement in january 2021 under president biden 1213the paris agreement is also known as the paris climate accord it s an agreement among the leaders of more than 180 countries to reduce greenhouse gas emissions and limit the global temperature increase to less than two degrees celsius or 3 6 degrees fahrenheit above preindustrial levels by the year 2100 negotiators at the november 2021 summit inked a deal that saw nearly 200 countries implement article 6 of the 2015 paris agreement it allows nations to work toward their climate targets by buying offset credits that represent emission reductions by other countries the hope is that the agreement encourages governments to invest in initiatives and technology that protect forests and build renewable energy technology infrastructure to combat climate change 14brazil s chief negotiator at the summit leonardo cleaver de athayde stated that the forest rich south american country planned to be a major trader of carbon credits it should spur investment and the development of carbon projects that could deliver significant emissions reductions he told reuters 15several other provisions in the accord that were aimed at reducing overall global emissions include zero tax on bilateral trades of offsets between countries and canceling 2 of total credits additionally 5 of revenues generated from offsets are placed in an adaptation fund for developing countries to help fight climate change negotiators also agreed to carry over offsets that had been registered since 2013 allowing 320 million credits to enter the new market 16who can sell carbon credits a diverse range of enterprises and individuals can sell carbon credits depending on their ability to participate in a carbon registry or sequestration program landowners may be able to sell carbon credits if they enroll their land be it forest grassland or rangeland into a project which will then measure and pay for carbon stored landowners may then earn additional revenue from the sale of credits linked to their land stewardship typically the project operator will also collect a broker fee 