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  • Writer's pictureEdwin Carlson

What are Carbon Credits and How Do They Work?

Director/COO | Carbon Credits | Sustainable Financial Engineering | FinTech | TradFi | Financial Services | Blockchain | Entrepreneur

As people around the world become more aware of the need to do something about climate change, carbon credits have become a key tool for promoting sustainability. However, what are carbon credits, and how do they function?

Simply put, a "carbon credit" is a certificate that represents a decrease in greenhouse gas emissions that has been independently verified and certified. To reduce greenhouse gas emissions' effects that can't be stopped, a carbon market makes it easier to buy and sell carbon credits.

Carbon offset projects, which include things like tree planting, renewable energy generation, and efficiency upgrades, are the primary source of carbon credits. The majority of these endeavours are carried out in third-world countries, where greenhouse gas emissions are high because of inadequate infrastructure and technology.

An unbiased third party verifies the project to ensure that the emissions reductions achieved through it are real, quantifiable, and additional.

Carbon credits generated by a verified carbon offsetting project can then be traded on a carbon market. Carbon credits are sold to companies who intend to use them to voluntarily reduce their greenhouse gas emissions or satisfy legal requirements.

There are numerous advantages to using carbon credits. Carbon credits are an instrument for financing sustainable development projects that would not be possible without a financial incentive to reduce greenhouse gas emissions. Carbon credits have the potential to aid in the preservation of biodiversity, the improvement of living conditions for locals, and the dissemination of scientific knowledge from developed to developing nations.

Carbon credits have social and economic benefits in addition to their environmental advantages. Jobs, better health and education, and greater gender equality are just a few of the many positive outcomes that can result from carbon offset projects.

Overall, carbon credits may play a crucial part in advancing sustainability and combating climate change. Carbon credits can encourage funding for sustainable development projects that have positive environmental and social impacts by creating a market for emissions reductions.

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