Every country on the planet is affected by climate change. It is the most serious threat to our planet and has a negative impact on the economy and lives. Weather patterns are shifting, sea levels are rising, and extreme weather occurrences are increasing and fast industrialisation may bear the brunt of the responsibility for all these causes. To counter this, the Kyoto Protocol was established by UNFCCC (United Nations Framework Convention on Climate Change).
The Kyoto Protocol
The Kyoto Protocol, signed in 1997, was an international treaty aimed at lowering carbon dioxide emissions and greenhouse gas levels in the atmosphere. The Kyoto Protocol's core premise was that developed countries needed to reduce their Emissions of carbon dioxide.
It acknowledged that industrialised nations are mostly to blame for the current high levels of GHG emissions in the atmosphere, which are the product of almost 150 years of economic activity. As a result, the agreement imposed a greater tax on affluent countries than on developing countries. The Kyoto protocol introduced the system of carbon credits.
What are Carbon Credits?
A carbon credit is a marketable licence or permit that grants the bearer the ability to release one ton (or 907 kg) of carbon dioxide or the comparable amount of another greenhouse gas. It is effectively an offset for those who create such gases.
The primary purpose of creating carbon credits is to minimise carbon dioxide and other greenhouse gas emissions from industrial activity in order to mitigate the consequences of global warming.
The quick reduction of emissions is not economically possible for certain businesses. As a result, they can buy carbon credits to meet the emission quota.
Companies that accomplish carbon offsets are frequently rewarded with additional carbon credits. The sale of credit surpluses might be used to support future carbon-reduction efforts.
How to invest through Carbon Credits?
Carbon Credits can also be traded. Companies that pollute less and have extra Carbon Credits can transfer them to a firm that needs them.
For example, a corporation in the United States may have an excess of Carbon Credits, but a company in India may require additional credits. As a result, they can be transferred either directly or through a third party.
Carbon credits have increased by 800% in the last four years. You can invest in them even if they aren't publicly traded.
Hedonova, for example, is a specific Carbon Credits fund that you may invest in. It is a private investment fund that helps you to diversify your portfolio by trading in tried-and-true investment options such as cryptocurrency, art, non-fungible tokens, and carbon credits. It's also available to Indian investors.