• Carbon credits are deceptively simple and completely baffling.
  • The government sets a limit on how much carbon dioxide a factory can spew into the atmosphere. Factories do not want to exceed that limit and will do everything that’s cost-effective to mitigate their pollution. That may mean buying new, more energy-efficient equipment or looking into alternative fuel sources like wind, solar or biomass.
  • The company may come in 100 tons over quota. In that case, it can invest in a carbon offset—in essence, a promise that somewhere, someone else will pollute 100 tons less carbon. The factory might still be releasing too much carbon dioxide, but the net result is “carbon neutrality” as some other factory slows down its own carbon dioxide output.
 

Carbon Offsets

  • Roughly defined, a carbon offset is a contract to reduce emissions, by a specified amount, within a specified time, to a specified degree, from an entity that is not already legally bound to make such reductions.
  • Offsets are typically generated from emissions-reducing projects. The most common project type is renewable energy, such as wind farms, biomass energy, solar or hydroelectric dams.
  • The concept of additionality holds that the money poured into carbon offsets has to actually make a difference—it has to create some benefit that, absent that contribution, never would have come to fruition. In other words, a company has to actively reduce its carbon output for you to be able to buy it as a legitimate credit.

Carbon Markets

  • Right now, carbon credits go for about $2.05 on the Chicago Climate Exchange. A nationwide cap-and-trade system would send those prices closer to $20.
  • Credits derived from Kyoto programs have risen 47% in the past month, from €7.50 to €11.00. EU Allowances have gone from €8.00 to €13.00.
  • Global carbon market grew 84% in 2008 to reach $118 billion. It's forecast to reach $150 billion this year.
  • When the U.S. formally commits, the global market could climb to $1 trillion, according to market analysis firm New Energy Finance.

Carbon Policies

  • “2009 must be the year of climate change. That means reaching a comprehensive agreement in Copenhagen by year's end.” U.N. Secretary-General Ban Ki-moon
  • A national cap-and-trade system is inevitable. Henry Waxman, the new chairman of the House Energy and Commerce Committee, has promised such legislation by Memorial Day.
  • President has included $646 billion in revenue in his budget from carbon sales between 2012 and 2019.
  • A portion of that $646 billion —$15 billion per year, to be exact —would be dedicated to "investments in clean energy."