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Carbon Credit
The concept of carbon credits for manufacturers originated with the Kyoto Agreement of 1997. As a means of combating global warming, signers of the agreement consented to limiting their carbon emissions to a predetermined amount. When businesses reach or surpass these goals, the agreement awards them carbon credits that can be sold to other companies who do not meet their goals. In this way, carbon credits can be like money in the bank for manufacturers willing to participate in the program.
When a business eliminates one ton of carbon emissions from its manufacturing process, it receives a carbon credit as a reward for its reduction. Companies that don’t reduce their carbon dioxide emissions have to buy carbon credits from businesses that do, making it profitable to be environmentally aware. The goal is to cut global warming emissions by 60% by the year 2050.
Kyoto set two prerequisites for businesses dealing in carbon credits:
Businesses must be in a country that signed Kyoto. Carbon credits come under the Kyoto Clean Development Mechanism (CDM).
Businesses need to register with the United Nations before they can sell their carbon credits to other businesses on the international market.
Much like commodities, carbon credits are traded on an exchange.
When entering the carbon credit market, the first step a manufacturer needs to take is calculating its “carbon footprint.” In this case, the carbon footprint refers to the amount of carbon dioxide that the manufacturing process emits into the atmosphere. Calculating the Carbon footprint has two areas of consideration.
- The primary footprint is a measure of our direct emissions of CO2 from the burning of fossil fuels including domestic energy consumption and transportation (e.g. car and plane). We have direct control of these.
- The secondary footprint is a measure of the indirect CO2 emissions from the whole lifecycle of products we use - those associated with their manufacture and eventual breakdown. To put it very simply – the more we buy the more emissions will be caused on our behalf.
We all, even as individuals, produce a Carbon footprint. For Example:
- Average home produces 12 tons of carbon per year
- Small car produces 3 tons of Carbon a year
It is important to understand the big picture when making decisions that may affect your company’s carbon footprint. |
