Eli5:- Carbon Credits. Why do they exist? What’s their purpose? How do they work? Is it a fad?

Question

Companies are talking about their ESG efforts, and I’ve noticed this term appearing a few times now.

In: 13

Answer 1

AFAIK, Each company has a set of carbon credits, respective government will set rules for carbon emissions for each particular companies.
So for example in Company A has carbon credits worth 100 units, 1 carbon credit = x tonnes of carbon emissions (don’t know x).
If their emissions are less than 100 units, they can sell excess credits in the carbon market for moneis.
If their emissions are more than 100 units, they can buy remaining credits from the carbon market for monies.