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What Is the Definition of Carbon Trading?

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

  1. 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 other’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.

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