In view of the rising concerns regarding global warming and increasing carbon emissions into the environment, many countries and non-governmental organizations have started thinking about efficient methods to decrease pollution. Among many other strategies for dealing with this issue, carbon trading and carbon offset have been highly successful.
Carbon trading involves companies buying carbon credits from the market. The credits allow businesses to go above their permissible quota of greenhouse gas emissions and not face the burden of a heavy fine for doing so.
Carbon trading motivates organizations to control their emission levels by providing economic incentives for doing so. The system wants businesses to realize that the cost of adopting ecologically sustainable methods of doing business is lower than the cost of carbon credits. If the company is made to shell out money for emitting the gases then it would try to use greener methods to stay ahead of other organizations. With the number of businesses that adhere to this system increasing, the quantity of overall emissions by countries will reduce, thereby making the environment cleaner.
A further advantage of carbon trading is the application of a market model which is open to all and permits organizations to openly trade in carbon credits. This system does not include any government intrusion such as imposition of fines or having regional regulations, which increases its efficiency.
The biggest problem however with carbon trading is that a global framework for trading is yet to be formulated. Since majority of trade in carbon credits is conducted in the global market, it is difficult for local enterprises to make use of this system.
Some companies are reluctant to actively involve themselves in this method because they do not want expenditure that they cannot include in the price tag of their items. Moreover, many small companies are not able to bear the costs necessary for buying new equipments and adopting new processes to lower their emissions. Hence, they are caught in a scenario where they have to go on paying for carbon credits every year, which means that they can’t stand up to larger organizations eventually.
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