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 The idea behind carbon offsets is relatively simple. Global warming has become generally accepted by scientists and ecologists. Every year, humans generate about 38 billion tons of carbon dioxide. Around the world, countries are tracking how many tons of greenhouse gas emissions companies produce. Targets are then set that cap or limit how much overall greenhouse gas emissions can be produced by all industries in a country.
That figure, measured in metric tons, is then divided between all the major greenhouse gas producers so that each company has an exact figure for how many tons they can emit in a year. They are issued a permit for each ton of carbon dioxide or its equal in greenhouse gases that can be released from their plants. These certificates are the basis for "emissions trading."
Until recently, there was little financial reason for companies to cut their emissions, except a fine for exceeding the federal limit in the case of the US or the set governmental limit in other countries. With the switch to "emissions trading", this has changed dramatically. Each company now has a very real incentive to lower their emissions, because when they do, they can sell their "emissions permits" to another company. The first company emits less than their quota of greenhouse gases and the second company emits more than their quota and offsets it by buying the first company's credits.
Does this benefit the environment and does it help those companies who are involved in producing Green Energy? The consensus of opinion is that it does both. This spring, in the Review of Environmental Economics and Policy, an independent study of the European Union's pilot project to reduce emissions (EU ETS) concluded that emissions trading and carbon offset trading produced the most success to date in worldwide climate policy.
And where does "carbon offset trading" come into this? Carbon offsets or credits are another method of reducing greenhouse gases by paying someone else to do something that will reduce emissions. Planting trees in developing countries, buying scrubbers for smokestacks in "dirty" factories, financing Green power producers, it all reduces pollution in the air we breathe, no matter where on earth we live.
However, carbon offsets are limited to 10 percent or less of the total emissions target at the present time. This is to make sure that companies focus first on cutting their emissions, rather than just paying to pollute by having other people do things that help the environment. The use of offsets recognises that all emissions go into our shared atmosphere, and that it is not as important where emissions are cut as that they are cut.
Narrowing our focus, it's also true that even individuals can benefit from carbon offsetting. While most of the "big players" have cornered the most readily accessible carbon-offsets, there are many opportunities left for the discerning investor. A new term, negawatt, has been coined to define the process of not using energy, instead of creating new energy sources. Investing in companies that supply homeowners with materials to make their homes more energy-efficient is but one example of the negawatt approach for investors. There has been a veritable explosion of companies that provide support for energy conservation, thus creating a burgeoning market for investors who want to buy into Green stocks, mutual funds and other commodities.
It seems obvious that carbon offset trading, along with other measures such as testing, monitoring and regulation of greenhouse gases, is a good investment for individuals, industries, countries and the planet.
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