Carbon Credit: What is it, how does it work, what benefits and how are the regulated and voluntary markets?

The carbon credit is a financial asset that allows private and public institutions to offset their greenhouse gas emissions. The objective is to reduce global emissions seeking to achieve climate balance.

What is the difference between voluntary and regulated carbon market.

Regulated carbon markets are systems created and regulated by the government with the aim of reducing greenhouse gas emissions. They work by establishing maximum emission limits for participating companies and organizations, which are obliged to buy carbon credits if they exceed these limits.

On the other hand, voluntary carbon markets are systems created spontaneously by companies and organizations, without legal obligation. It is an option for companies that want to reduce their greenhouse gas emissions without being bound by government regulations. In general, these markets are managed by non-profit organizations or private entities, and emissions are offset through the purchase of carbon credits or investments in emission reduction projects.

In short, the difference between the two types of market is that the regulated market is mandatory and regulated by the government, while the voluntary market is a voluntary option for companies and organizations that want to neutralize their emissions.

How does the carbon credit work?

In the first place, based on the considerations made about the regulated and voluntary market, it is worth mentioning that targets for reducing or limiting greenhouse gas emissions are established by companies and countries.

Next, if an institution emits fewer gases than the limit
permitted in the regulated market, it will be able to sell its "surplus" as carbon credits to other institutions that need to offset their emissions.

Additionally, if an organization emits less or even fixes carbon in its productive activity, this amount can be sold on the voluntary market to organizations that wish to reduce their emissions, without a legal obligation.

Carbon credits are therefore traded on carbon markets where public or private intuitions can buy and sell carbon credits depending on legal needs or commercial inclinations.

What are the benefits generated by the carbon credit market?

Help reduce greenhouse gas emissions and preserve the climate balance. Offer a market tool for companies and countries to offset their emissions. Create a market capable of reducing emissions, encouraging the adoption of green technologies and innovative less polluting tools.

In short, the carbon credit is an important tool in the fight against climate change. By encouraging the reduction of emissions and the implementation of green technologies, it helps preserve the climate balance and ensure a more sustainable future for our planet.

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