Industry Updates

Carbon Credit: How Do They Help to Fight Global Warming?

Carbon credit is a tradable permit that allows the company to emit a certain amount of carbon dioxide or an equivalent greenhouse gases. 

Companies that pollute are given credits that allow them to pollute up to a certain limit, but the limit will be reduced periodically. One credit permits the emission of a mass equal to one ton of carbon dioxide. 

The main goal for the carbon credit existence is to reduce the greenhouse gas emissions as well as the emissions of carbon dioxide coming from industrial activities. 

History of Carbon Credit

In 1997 agreement, The United Nations’ Intergovernmental Panel on Climate Change (IPCC) developed a carbon credit proposal to reduce worldwide carbon emissions or widely known as the Kyoto Protocol. This agreement set the emission reduction targets for several countries that signed it. 

The Kyoto Protocol has divided countries into two categories; industrialized and developing economies. The Industrialized countries operated in their own emissions trading market. In a condition where a country emitted less than its target amount of hydrocarbons, this country could sell its surplus credits to countries that didn’t reach its Kyoto level goals. 

How Does Carbon Credit Work? 

As part of market mechanisms in order to minimize the greenhouse gases emissions, Governments or other regulatory authorities set the caps on the greenhouse gas emissions produced by the company. 

Referring to the condition where the immediate reduction of the emission is not economically viable for some companies, they are able to purchase carbon credits to comply with the emission cap. 

On the other side, companies that successfully reduce the emissions of greenhouse gases (achieve the carbon offsets) usually will be awarded with additional carbon credits. Later on, the surplus of the carbon credit can be used to subsidize the reduction emissions for future projects. 

There are two types of Carbon Credit as follows: 

a. Voluntary emissions reduction (VER): Considered as a carbon credit created by reducing emissions in a voluntary program through scientifically verified projects. The Gold Standard Voluntary Emission Reductions published by the Gold Standard Foundation, a non-profit foundation based in Switzerland is one of the project examples.

b. Certified emissions reduction (CER): Credits or emissions units created under a regulatory framework aims to offset a project’s emissions. One of the project examples with the CER type is Clean Development Mechanism (CDM) Projects by the United Nations Framework Convention on Climate Change (UNFCCC). 

Type of Carbon Credit. Source: corporatefinanceinstitute.com

Carbon Credit in Implementation

1. The Katingan Mentaya Project in Indonesia

The Katingan Mentaya Project is a peatland conservation located in Central Kalimantan specifically located between the Katingan and Mentaya Rivers. Founded in 2007 by Dharsono Hartono dan Rezal Kusumaatmadja, The Katingan Mentaya Project has been verified under the Verified Carbon Standard (VCS) and Climate, Community, and Biodiversity (CCB) standards in 2016. 

By using the carbon credit business model, The Katingan Mentaya Project aims to reduce carbon emissions, protect biodiversity, and create sustainable economic development for communities. According to weforum.org, until today, The Katingan Mentaya Project is one of the world’s largest forest-based avoided-emissions projects. This project has prevented the release of emission gases more than 37 million tonnes of CO2 as well as saving 200.000 hectares of peat swamp forest. 

The Katingan Mentaya Project. Source: katinganproject.com
The availability to buy credits from The Katingan Project. Source: katinganproject.com

2. Airline Industries in Europe 

As stated in weforum.org The Europe Airline Industries is the most energy-intensive industries. These airlines are operating flights between EU member countries and already used the carbon credit to fulfill the mandatory limits of their emissions under the EU Emissions Trading Scheme (EU-ETS). The use of carbon credit has begun its operation since 2005. 

Airline industry in Europe Source: marketingtutor.net

The EU-ETS has a system that involves: limiting the emissions from the 10,0000 installations in the power sector and manufacturing industry, including the operations of the airlines. 

3. Joint Credit Mechanism (JCM) 

Joint Credit Mechanism (JCM) is a carbon credit program as the result of bilateral cooperation between the Indonesian and Japanese Governments. Beside the carbon credit program, JCM is also a medium for green investment and low emission development.

Apart from the effort to reduce the greenhouse gas emissions, the procurement of JCM by both parties aims to encourage Indonesian and Japanese private parties to invest in Low Carbon Development through incentives provided by the Japanese Government.

This collaboration began with the signing of the “Low Carbon Growth Partnership between the Republic of Indonesia and Japan” in 2013.

JCM as the result of the bilateral cooperation between the Indonesian and Japanese Government. Source: beritasatu.com

In practice, the JCM mechanism also covers aspects of technology transfer in several sectors, such as:

  1. Energy Efficiency
  2. Renewable Energy
  3. Deforestation and Forest Disintegrations
  4. Waste Management
  5. Fugitive Emission; and
  6. Manufacturing Industry

As a responsible waste management service in Indonesia who also supports the goals of carbon credit, Waste4Change proudly introduces the newest service, Waste Credit

Through this service, clients are able to help producers collect more waste to be recycled and to reduce the waste that ends up in the landfill. Get the proposal now

Reference:
https://www.investopedia.com/terms/c/carbon_credit.asp

https://corporatefinanceinstitute.com/resources/knowledge/other/carbon-credit/
https://carboncreditcapital.com/carbon-credits/

https://www.weforum.org/agenda/2020/11/what-is-a-carbon-credit-climate-change/

https://ec.europa.eu/clima/policies/ets_en

https://katinganproject.com/

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