A carbon credit is a generic term meaning that a value has been assigned to a reduction or offset of greenhouse gas emissions.^[1] Carbon credits and markets are key components of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). One carbon credit is equal to one ton of carbon dioxide, or in some markets, carbon dioxide equivalent gases. Carbon trading is an application of an emissions trading approach. Greenhouse gas emissions are capped and then markets are used to allocate the emissions among the group of regulated sources. The goal is to allow market mechanisms to drive industrial and commercial processes in the direction of low emissions or less carbon intensive approaches than those used when there is no cost to emitting carbon dioxide and other GHGs into the atmosphere. Since GHG mitigation projects generate credits, this approach can be used to finance carbon reduction schemes between trading partners and around the world.

Burning of fossil fuels is a major source of industrial greenhouse gas emissions, especially for power, cement, steel, textile, fertilizer and many other industries which rely on fossil fuels (coal, electricity derived from coal, natural gas and oil). The major greenhouse gases emitted by these industries are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons (HFCs), etc, all of which increase the atmosphere's ability to trap infrared energy and thus affect the climate.

The concept of carbon credits came into existence as a result of increasing awareness of the need for controlling emissions. The IPCC (Intergovernmental Panel on Climate Change) has observed^[3] that:

Policies that provide a real or implicit price of carbon could create incentives for producers and consumers to significantly invest in low-GHG products, technologies and processes. Such policies could include economic instruments, government funding and regulation,

while noting that a tradable permit system is one of the policy instruments that has been shown to be environmentally effective in the industrial sector, as long as there are reasonable levels of predictability over the initial allocation mechanism and long-term price.

The mechanism was formalized in the Kyoto Protocol, an international agreement between more than 170 countries, and the market mechanisms were agreed through the subsequent Marrakesh Accords. The mechanism adopted was similar to the successful US Acid Rain Program to reduce some industrial pollutants.

 Emission allowances

Under the Kyoto Protocol, the 'caps' or quotas for Greenhouse gases for the developed Annex 1 countries are known as Assigned Amounts and are listed in Annex B.^[4] The quantity of the initial assigned amount is denominated in individual units, called Assigned amount units (AAUs), each of which represents an allowance to emit one metric tonne of carbon dioxide equivalent, and these are entered into the country's national registry.^[5]

In turn, these countries set quotas on the emissions of installations run by local business and other organizations, generically termed 'operators'. Countries manage this through their national registries, which are required to be validated and monitored for compliance by the UNFCCC.^[6] Each operator has an allowance of credits, where each unit gives the owner the right to emit one metric tonne of carbon dioxide or other equivalent greenhouse gas. Operators that have not used up their quotas can sell their unused allowances as carbon credits, while businesses that are about to exceed their quotas can buy the extra allowances as credits, privately or on the open market. As demand for energy grows over time, the total emissions must still stay within the cap, but it allows industry some flexibility and predictability in its planning to accommodate this.

By permitting allowances to be bought and sold, an operator can seek out the most cost-effective way of reducing its emissions, either by investing in 'cleaner' machinery and practices or by purchasing emissions from another operator who already has excess 'capacity'.

Since 2005, the Kyoto mechanism has been adopted for CO₂ trading by all the countries within the European Union under its European Trading Scheme (EU ETS) with the European Commission as its validating authority.^[7] From 2008, EU participants must link with the other developed countries who ratified Annex I of the protocol, and trade the six most significant anthropogenic greenhouse gases. In the United States, which has not ratified Kyoto, and Australia, whose ratification came into force in March 2008, similar schemes are being considered.

Farmers Union’s Carbon Credit Program allows ag producers and landowners to earn income by storing carbon in their soil through no-till crop production, conversion of cropland to grass, sustainable management of native rangelands and tree plantings on previously non-forested or degraded land. In addition, the capture of methane from anaerobic manure digester systems can also earn carbon credits.

Farmers Union has earned approval from the Chicago Climate Exchange to aggregate carbon offsets (carbon credits) and sell them on behalf of producers. Farmers Union enrolls producer acreage into blocks of marketable offsets that are traded on the Exchange, much like other agricultural commodities are sold. Proceeds from the sales are then forwarded to producers as each pool of carbon credits is marketed. National Farmers Union’s Carbon Credit Program earned more than $8 million for producers in its first two year of operation.

No-till crop production offsets are eligible in most central and eastern states. Seeded grass acres can be enrolled in most states and managed native rangeland offsets are offered mostly in central and western states. Maps are available on this Web site that show eligible states and counties. They are automatically programmed into the enrollment system and payment estimator. Forestry and agricultural methane projects also are available in every state.

Farmers Union offers continuous online enrollments for all offset types, although pools of enrollments are closed periodically for verification and registration of offsets.  Producers provide land descriptions or map designations for the land they enroll in the program. The entered information is then transferred directly into Farmers Union’s database. Producers then follow up by sending in FSA 578 forms that detail their cropland acres, pasture descriptions, grazing plans for range acres and current maps. Producers also remit a signed contract. It is necessary for producers to have a valid e-mail address, as well as a post office address, for communication and verification purposes.

Agricultural methane offsets are also available, but only sample contracts and applications are available online. These individual projects will require producers or landowners to send in all materials by mail. Pooling, verification and marketing of carbon offsets will follow.

In step with the dramatic rise in C0₂ emissions and other pollutants in recent years, a variety of new financial markets have emerged, offering businesses key incentives — aside from taxes and other punitive measures — to slow down overall emissions growth and, ideally, global warming itself.

A key feature of these markets is emissions trading, or cap-and-trade schemes, which allow companies to buy or sell “credits” that collectively bind all participating companies to an overall emissions limit. While markets operate for specific pollutants such as greenhouse gases and acid rain, by far the biggest emissions market is for carbon. In 2007, the trade market for C0₂ credits hit $60 billion worldwide — almost double the amount from 2006.

Greenhouse Gas – Carbon Credits

Like the CAA, the Kyoto Treaty has a provision for the earning and trading of carbon dioxide emission reduction credits – carbon credits. In anticipation of its ratification, carbon credits have been trading for several years.

In January 2005 the European Union carbon credit trading program commenced, The market for these credits has been predicted to grow to $40 to $100 billion per year. Europe is already not meeting its commitments for Greenhouse Gas reductions and, as a result, the prices of Carbon Credits has gone up (to $28 per tonne as of Oct 5, 2005). With the known reductions of methane and NOx for the Bion process, the Bion process offsets the equivalent of 9.3 tonnes of Greenhouse

Warming Gases per cow per year. At current levels, this is the equivalent of $260 of carbon credits per cow per year.

Carbon credit