Rafael Morales Moreira
International Finance and Capital Market
February 15, 2007
In a time of rising technology and increasing population, demands on the environment are continually being pushed to new levels. As a result, it becomes important for us to expand our knowledge about the environment and take appropriate actions to protect this element of most importance to human existence. One component of our environment experiencing some of the greatest abuse due to humans is the air. Air pollution has been on the rise ever since the beginning of industrialization. The climbing number of factories and use of cars worldwide are the major culprits of this environmental hazard. There are various gases released into the air that can be considered air pollutants, but one of the most common and dangerous to the environment is carbon dioxide (CO2).
As the environment encounters damage from increasing levels of carbon dioxide, actions on both governmental and individual levels need to be implemented in order to protect the welfare of future life. In order to protect the environment from the threats that carbon dioxide brings Carbon Credits are now being used as a system that will reduce the environmental hazards.
Carbon credits are certificates awarded to countries that are successful in reducing the emissions that cause global warming. For trading purposes, one credit is considered equivalent to one ton of carbon dioxide emission reduced. Such a credit can be sold in the international market at a market rate. The trading can take place in open market. Developed countries that have exceeded the levels can either cut down emissions, or borrow or buy carbon credits from developing countries. The Concept of Carbon credit came into existence as a result of increasing awareness on the need for pollution control. It took the formal form after the international agreement between 141 countries, popularly known as Kyoto Protocol.
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What emerged from the Kyoto meeting is that as each country produces CO2, it must be able to contain that CO2 by tree-planting or other processes that can absorb it, such as changing farming methods. Or it can reduce the CO2 it produces in the first place. If that country produces more CO2 than it can absorb, it must purchase an absorption ability from another nation. The Carbon Credit is a new currency and one Carbon Credit is equal to one ton of CO2 and is called a Carbon Dioxide equivalent. A country might have a shortfall in absorbing 500,000 tons of CO2 and according to the Kyoto agreement it must try to find a way to purchase those from another country that has been planting trees for such a consideration. The costs of the Carbon Credits in US dollars are between $10–40 per credit. Developed countries have to spend nearly $300-500 for every ton reduction in CO2, against $10-25 to be spent by developing countries. In countries like India, Green House Gas emission is much below the target fixed by Kyoto Protocol and so, they are excluded from reduction of GHG emission. On the other hand, they have the permission to sell surplus credits to developed countries. It is here that trading takes place. Foreign companies who cannot complete the protocol norms can buy the extra credit from companies in other countries through trading.
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The money that purchases carbon credits will in the end be used to give grants to further carbon saving projects. New Zealand has already funded some wind generation projects from the money gained from selling carbon credits. Ireland has recently purchased 95% of its carbon credits from overseas to make up for the millions of tons of CO2 its industries will develop for the next years. The other 5% will come from the country as they have new practices of farming and been planting trees since 1990. Some countries do not necessarily have loads of carbon credits to sell as they have not made any attempts to increase the number of trees since 1990. There are still some complications that have to be faced with. For example, in Australia, Virgin has tried to introduce it’s airline but has been put on hold by the need to make up for it’s CO2 pollution by the purchase of Carbon Credits which makes them uncompetitive.
There are critics of the Carbon Credit trading, mainly environmental justice NGOs and movements who see carbon trading as a production of the free market into public spaces and environmental policy-making. They point to failures in accounting, uncertain science and destructive impacts of projects upon local peoples and environments as reasons why trading pollution rights should be avoided. Instead they are in favor of making reductions at the source of pollution and energy policies that are justice-based and community-driven. The National Allocation Plans by member governments of the European Union Emission Trading Scheme have been criticized due to some governments issuing more carbon credits than emissions during Phase I of the project. They have also been criticized because they think polluters are given carbon credits by governments, instead of being made to pay for them.
In conlusion, in spite of the controversy behind the Carbon Credit trade we should support it because it’s a solution which will help the environment before the dangers increase. Recently the world has to face severe climate change and hurricanes and imagine the costs of these tragedies. If there is a way we can avoid these problems we should go with it because the inconvenience of the sky being darkened is nothing to the lasting effects of all the carbon being thrown into the atmosphere and radically changing our climate by trapping the heat from the sun, once the clouds of ash have disappeared.
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Wikipedia The Free Encyclopedia. //en.wikipedia.org/wiki/Carbon_credit.
Nova Science in the News. //www.science.org.au/nova/054/054key.htm.
Save the Planet. //www.savetheplanet.co.nz/carbon-wave-power.html.