Glossary of Aviation Terms | Carbon Credit

Carbon Credit | Paramount Business Jets

Carbon credits create a market for reducing gas emissions because they give a monetary value to the cost of polluting the air. Water, for example, is a free natural resource, but governments have a system of charging for water because they view it as valuable. Just like water, carbon becomes a business cost and is seen as water rates.

For example, say that a factory emits 100,000 tonnes of greenhouse gases in one year. Due to international pressure, the government enacts a law that restricts the maximum amount of greenhouse gases a business is permitted to emit to 80,000 tonnes per year. The aforementioned factory then has two options: to reduce its emissions to 80,000 tonnes, or to purchase carbon credits to offset the extra amount of gas it will produce above the cap.

The factory business would purchase the carbon credits on the open market from an authorized seller, such as a company that will plant a certain number of trees per carbon credit. Since the factory emits 20,000 tonnes of extra pollutants into the atmosphere, it now pays another group to plant enough trees to draw an equal amount of carbon dioxide from the atmosphere.