Carbon Credits

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Welcome to Week 19 of TechExec - the newsletter that turbocharges your growth to become a Tech Executive!

As always, we are sharing a new set of BLTs this week

• 💼 B - a Business concept / theory / story

• 💝 L - a lifestyle advice

• 🤖 T - a Tech explainer

Here is the schedule:

Monday —>💼 B - a Business concept / theory / story

Wednesday —> 💝 L - a lifestyle advice

Friday —> 🤖 T - a Tech explainer

This week we will cover Critique Club on Wednesday and introduce you to Quantum Computing on Friday.

Today’s Business Concept is the Carbon Credits!

💼 B - Carbon Credits

Carbon Credits are the currency of the climate change world. It's a novel approach that leverages the principles of the free market to reduce greenhouse gas emissions. But how does it work? How are these carbon credits traded? Let's dive in and demystify this eco-economic instrument.

In essence, a carbon credit is a permit that allows the holder to emit a certain amount of carbon dioxide or other greenhouse gases. One credit is equivalent to one tonne of carbon dioxide emissions, or its equivalent in other greenhouse gases. These credits are part of international agreements like the Kyoto Protocol, which aim to limit the total amount of carbon dioxide and other greenhouse gases that countries can emit.

Here's where it gets interesting. If a company or a nation stays under its emission limit, it can sell its excess capacity as carbon credits to another entity that has exceeded its limit. It's a win-win situation (unless you're the Earth).

Consider WindEnergy Co., a company that produces electricity using windmills. For every tonne of carbon they save by not burning fossil fuels, they get a carbon credit, which they can sell on the market to, say, FossilFuel Inc., which is having a hard time reducing its carbon footprint. This transaction provides an economic incentive for reducing emissions because the less you pollute, the more credits you have to sell.

Carbon credits can be traded in two main markets: the compliance market and the voluntary market. In the compliance market, countries and companies are legally obligated to reduce their emissions under international treaties. If they emit more than their quota, they must buy carbon credits to offset their excess emissions. In the voluntary market, entities without legal obligations buy carbon credits to reduce their carbon footprint voluntarily.

A good example of how carbon credits work is the Clean Development Mechanism (CDM) under the Kyoto Protocol. Under this mechanism, developed nations can finance green projects in developing nations and earn carbon credits in return. The idea is that it's often cheaper to reduce emissions in developing countries due to lower costs and greater opportunities for improvement. For instance, a British company could fund a wind farm in India and earn carbon credits for reducing emissions that it could use to offset its own emissions in the UK.

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Gaurav