Ive seen them on the news recently but Im confused as to what they actually do. Is it like a tax?
In: Economics
Basically each carbon credit allows a company to emit a certain amount of carbon dioxide, which is created during manufacturing of things, producing electricity, etc. Every company gets a certain amount of them. If they need emit less carbon dioxide then they have carbon credits for, then they can make money by selling them to another company, which for whatever reason needs to emit more carbon dioxide.
They are sold like stocks on a market.
The idea behind is that you reduce the amount of carbon credits every year and therefore the amount of carbon dioxide, which contributes to climate change. Companies get an incentive to produce less carbon dioxide, as it rewards them with money (or punishes them with additional costs, when producing too much carbon dioxide).
Basically it tries to use market mechanisms to help reducing carbon dioxide, and climate change.
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