What are all those carbon credits, offsets, and things?There has been carbon trading for years: I'll give you a ducat for that coal, a riyal for that oil, a pew for that tree. This is commodity trading.
What is new is trading various derivatives related to the carbon in a fuel, the carbon dioxide emitted by a process, the production of renewable energy, or the sequestration or reduction of CO2 output.
In case you have been as confused as I have by all the permutations, here is a breakdown:
|Emissions Trading||Carbon Credit||Renewable Energy Certificate||Carbon Offset||Carbon Tax|
|"Cap and Trade" -- tradable right to exceed government-set quota||Tradable permit to emit CO2 issued by a seller who is reducing CO2 emission.||"Green Tag" -- tradable evidence that electricity was produced by approved renewable sources||Tradable assurance that someone else has reduced CO2 emissions by a certain amount||A tax paid to government based on carbon content of fuel|
|Transfers wealth from greater polluters to lesser polluters in a regulated system of allowances||Transfers wealth from carbon emitter to carbon emissions reducer or mitigator.||Transfers wealth from electricity consumer buying from the grid to generator using renewable technology selling to the grid elsewhere.||Transfers wealth from a CO2 emitter to owner of a project that reduces CO2 emissions. Project may sequester carbon, or produce energy by less carbon intensive means, or prevent the emission of carbon as from change in land use.||Transfers wealth from users of fuel to the government.|
|Right to emit a given quantity of pollutant above allowance||Right to emit one tonne of CO2||Essentially a premium paid above standard rates for production of electricity by renewable sources. Makes production by renewable means more profitable.||Gives you the right to feel OK even though you are emitting CO2. May provide additional revenue to emission-reducing project.||Puts a cost on the negative externalities associated with using CO2-emitting fuel. Makes reducing such use more economically attractive.|