What is carbon credit?

Currently, the world is experiencing a greenhouse effect causing the earth’s surface temperature to rise. This is caused by greenhouse gases such as carbon dioxide, methane, nitrous oxide, and chlorofluorocarbons (CFCs), mainly produced by human activities. These gases reflect extreme heat waves and raise overall temperatures. As a result, the weather around the world become unstable. If we do not act to control it from today onward, it might have serious effects on living organisms in the future.

Many countries around the world are also aware of the greenhouse effect problem, so they have made agreements to reduce this problem. Most developed countries have set a goal to reach net zero GHG emissions by 2050. Thailand has also set both the intermediate-term goal of carbon neutrality, especially for carbon dioxide by 2050 and the long-term goal of net zero GHG emissions by 2065.

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In Thailand, there is a public organization called the Thailand Greenhouse Gas Management Organization (TGO) under the Ministry of Natural Resources and Environment. It is responsible for analyzing, scrutinizing, and certifying greenhouse gas emissions reduction project.

Carbon credit is the limited amount of carbon dioxide that a company is permitted to emit per year. The carbon emission amount is required to be reduced every year. If carbon emissions are less than the specified standard, the company can sell carbon credit surpluses to other companies.

The calculation of carbon credit can be done by calculating the carbon footprint, which is the total amount of carbon dioxide and other greenhouse gases emitted throughout a product’s lifecycle. These gas emissions are produced by human activities such as electricity consumption, fuel consumption, and industrial processes.

Formula: 1 carbon credit = 1 ton CO2e avoided / removed

For this reason, a carbon market is a place to buy, sell, and trade carbon as products to achieve organization goals or to offset carbon dioxide emissions made when conducting activities.

There are two types of carbon markets:

  1. Mandatory Carbon Market: It is established because of law enforcement to reduce greenhouse gas emissions, whereby the government legislates and controls the amount of greenhouse gas emissions. If market participants do not follow the rules, they will be subject to legal punishment.
  2. Voluntary Carbon Market: It is a market set up by voluntary cooperation in the private sector aimed at reducing greenhouse gas emissions without legal effect. Thailand is also in this market because there is currently no relevant law (in the process of drafting a law).

To be able to trade carbon credits, entrepreneurs must submit project proposals and register their carbon credits with TGO. After that, they must go through a process of checking usability and verification by an external evaluator first.

To buy carbon credits, entrepreneurs need to register their trading accounts with TGO. After that, buyers and sellers can negotiate directly with each other. Once the transaction is completed, TGO will transfer the carbon credits from the seller’s account to the buyer’s account.

According to data in 2022, the trading volume of carbon credits in Thailand has greatly expanded to 425% compared to 2021. However, the carbon market in Thailand is relatively small, and the price is low compared to the mandatory carbon market in other countries. Therefore, entrepreneurs should be ready to implement greenhouse gas reduction projects and start trading carbon credits while the market price is not extremely high. Anyway, purchasing carbon credits can reduce more cost of greenhouse gas reduction project than running the project by the entrepreneurs themselves.

Source:

Thailand Environment Institute

https://greenlifeplusmag.com/

Krungthai Compass

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