Carbon trading is a regulatory and economic measure applied with a motive of reducing pollution from carbon dioxide emission and other greenhouse gases. Carbon trading creates an alternative that encourages companies to enhance their efficiency as well as a mechanism that generates financial benefit by reducing emissions from their greenhouse. Regulatory measures are always set to ensure that carbon trading is well practiced and penalties are enforced if a company fails to meet the standards set on emissions. Carbon trading contributes to economic growth by providing a commodity that can be traded in the market and at the same time reducing the effect of global warming.
Carbon offsetting is the investment in projects that are carbon-saving with an intention of reducing emissions from another source. These projects results to no emissions by ensuring that the gases emitted are exhaustively saved. To achieve this objective, a calculation is done to measure the quantity of gas emitted and setting up a project that saves the same amount of gas. There are various factors that must be considered to ensure that an effective project is set up. First, the project should be set up for purposes of offsetting carbon only. Secondly, the project location must ensure that the purpose of the project is met. Thirdly, the project should be beneficial to the society.
Cap and trade is a flexible regulatory practice of reducing emissions by setting up a cap which reflects the level of pollution that is allowed and credits issued to companies on pollution. If the company at any time goes below the allowed level of pollution, it will have additional credits that give it an opportunity to trade with other companies. The similarity between carbon trade, carbon offset and cap and trade is that all are practices meant to reduce emissions. The difference comes in how they are implemented.
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Taiyab, N. (2006). Exploring the market for voluntary carbon offsets. London: IIED.