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What are carbon credits?

In a bid to reduce greenhouse gas emissions, and other chemicals into the atmosphere by private and public industrial organizations, there is a need for regulation—hence carbon credit.

A carbon credit is a tradable permit that allows the holder to emit a ton of carbon dioxide or a specific amount of greenhouse gas into the atmosphere. Its creation is to help repair and promote the safety of the environment and Earth in general, reducing global warming and repairing the ozone layer.

Carbon credits were formulated in 1997 in Kyoto, Japan in the United Nations Framework Convention on Climate Change (UNFCCC). The present world representatives agreed on carbon credits emission rules and regulations and in 2001 in Germany, and the total ratified countries amounted to 191—except the United States of America.

The registered countries and organizations are required to purchase carbon offsets. Carbon offsets are units accrued, earned, or issued to organizations  by the governing board for every one ton of greenhouse gas stored which can then be sold to third-party bodies for investment purposes.

The difference between voluntary and regular credit markets

There are two major credit markets available in carbon credits: Voluntary credit markets and regulated credits markets.

Voluntary credit market or voluntary emissions reduction allows non-registered bodies or organizations to purchase carbon offsets to regulate the greenhouse emission from their industrial activities.

Regular credit markets or regulatory credit markets allow registered government properties and private equities purchase carbon offsets in compliance with the laid down amount of exhumed greenhouse gasses. The market was created by associations of treaties such as the pioneer Kyoto protocol.

Both market credits work hand in hand to ensure the goal of reducing greenhouse gasses in the environment is established.

There Are Several Ways To Get Invested in Carbon Credit Markets

How can you invest in these carbon credit markets?

– Look at sustainable energy companies that range from Tesla to Solar Power energy organizations

– Purchase the KRBN ETF or the GRN ETF

There seems to be a few ways to invest in carbon credit markets and have exposure to this type of regulation that will continue to be more present over the next decade. These carbon credits may become more expensive over time as more demand increases and corporations pledge to keep their carbon levels in check. The regular push by shareholders for ESG and more sustainability will accelerate over time as more firms and countries shift to the green energy transition.

Photo by Loïc Manegarium from Pexels

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