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The Glasgow pact recently signed at COP26 deals with many issues of the Paris Agreement, such as finance, reporting of climate actions, transparency in climate actions, and rules for creating global market for trading in carbon offsets (carbon credits).

·         Carbon credit could be a monetary instrument issued to an entity, a corporation or municipal body, for undertaking an activity, that has the impact of either avoiding emission of CO2 into the atmosphere or absorbing back a number of the already emitted CO2 (sequestration).

·         A carbon credit could be a allow that permits the corporate that holds it to emit a certain quantity of carbon dioxide or other greenhouse gases.

·         One credit permits the emission of a mass equal to one ton of CO2.

·         Carbon credits were devised as a market-oriented mechanism to reduce greenhouse gas emissions.

·         Companies get a group range of credits, that decline over time. they will sell any excess to a different company.

·         Thus, “cap-and-trade” is an incentive to reduce emissions.

·         Companies that pollute are awarded credits that permit them to still pollute up to a certain limit.

·         That limit is reduced periodically. Meanwhile, the corporate might sell any unneeded credits to a different company that desires them. Negotiators at the glasgow COP26 global climate change summit in November 2021 in agreement to a world carbon credit offset trading market.

·         Its history – With the signing of the Kyoto Protocol in 1997, a market was created for the reduction of greenhouse gases, assigning a monetary value to the reduction of emissions.

·         One of the Flexible Mechanisms defined by the Kyoto Protocol is the Clean Development Mechanism (CDM).

·         The signatory countries of the Protocol have agreed to reduction targets.

·         Carbon credits received within the method of meeting these targets may be sold-out to governments or corporations that havent been ready to reduce their emissions.

·         Despite the problem some countries have had in reducing emissions, experts agree that the foremost important factor from an ecosystem perspective is that the international effort to reduce greenhouse gases, regardless of political boundaries and progress toward compliance in specific jurisdictions.

·         Thus the carbon market permits a government or business to acquire emissions reductions created elsewhere to achieve its own objectives.

·         The goals of the initial agreement were expanded  and updated at the Durban climate change Conference in 2011.

·         Carbon markets existed under the Kyoto Protocol, that is being replaced by the Paris Agreement in 2020.

How is a Carbon Credit different from a Renewable Energy Certificate?

·         Other trading units under Kyoto Protocol – The other units which may be transferred under the scheme, each equal to one tonne of CO2, may be in the form of: A Removal Unit (RMU) on the basis of land use, land-use change and forestry (LULUCF) activities such as reforestation.

·         An Emission Reduction Unit (ERU) generated by a joint implementation project.

·         A Certified Emission Reduction (CER) generated from a clean development mechanism project activity.

·         Transfers and acquisitions of those units are half-tracked and recorded through the register systems below the Kyoto Protocol.

·         Internationally Transferred Mitigation Outcomes (ITMO) Internationally Transferred Mitigation Outcomes (ITMO) ar units from the new mechanism for the international emissions trading between Parties to the Paris Agreement.

·         General rules during this regard are stipulated in Article 6(2) of the Paris Agreement however details for this mechanism are to be established yet.

·         All assets under the Paris Agreement – known as International listed Mitigation Outcomes – ar authorised to be used in another country’s NDC ar subject to an adjustment mechanism to make sure that only 1 party takes credit for these reductions.

·         Parties have the correct to incorporate the reduction of emissions in the other country as their NDC, as per the system of carbon trading and accounting. One reason for international transfers of mitigation outcomes is that they permit a ‘buyer’ country to finance lower-cost emissions reductions in another country to fulfill its own commitment while not losing environmental integrity.

·         This permits them to be more ambitious.

·         It conjointly permits ‘seller’ countries to finance domestic mitigation beyond what will be achieved with their own resources.