Carbon Trading: Definition, How It Works & Environmental Impact

Carbon trading makes it possible for companies, organizations or even entire nations to buy and sell ̶0;carbon credits̶1; that go toward reducing atmospheric carbon dioxide.

Carbon Offset

• Carbon trading aims to prevent increases in environmental carbon dioxide by offsetting carbon-emitting activities with carbon-conserving activities, according to Ecomii.

Credits

• A nation or business entity that has reduced its carbon emissions significantly below a set level may sell the offset as carbon credits to another entity that has yet to reduce its carbon emissions to the required level.

Application

• An entity that receives money in exchange for its carbon credits will then use the money to launch or support a project intended to reduce carbon emissions, increasing the overall positive impact on the environment.

Advantages

• Carbon trading allows entities that cannot directly reduce their own carbon emissions to contribute to other̵7;s efforts, making an indirect but measurable impact on carbon dioxide reduction.

Example

• In one hypothetical example of carbon trading, an energy company might buy carbon credits that will pay for the construction and operation of a commercial wind turbine.