This note is a part of my Zettelkasten. What is below might not be complete or accurate. It is also likely to change often.
30th August, 2020

Market for Carbon Credits

Carbon credits were created as a mechanism aimed at assigning a monetory value to carbon emissions and allowing governments to regulate and limit them.

What is a carbon credit?

If an entity is to capture and sequester 1 ton of carbon, they are said to have earned 1 carbon credit.

How it works

Each entity is given a quota of the emissions it is allowed. A factory can be given a quota of 80000 tons of carbon. To meet the quota, the factory can:

  • Regulate production to stay within carbon quota
  • Increase efficiency to produce more without increasing emissions
  • Offset the excess emissions by buying carbon credits off the market
  • Sell excess credits if it stays well within its limits


  • Didnt address the problem in its entirity - targets only emissions
    • Biodiversity loss, etc play a big role and were ignored
  • Rigid and myopic rules for sequestering carbon (esp for forest based offsetting)
    • Locals were not allowed to use the forest for firewood and other traditional reasons.
  • Offsetting a powerplant using a forest in Indonesia will not prevent local impact of the pollution.
  • Discussions about reduction of consumption are sidelined by this mechanism.
  • Pricing was very volatile and fluctuated a lot
  • Procedure to administer the market mechanism was very cumbersome.