V3I5P109

A Study on Carbon Credits: A Market-Based Financial Instrument for Climate Change Mitigation 

Janani R^1*

Abstract

The effects of climate change have become an increasing global concern and many nations are adopting market-based mechanisms to reduce greenhouse gas emissions. One of these market-based instruments has been the introduction of carbon credits which allow companies to trade emissions allowances and create financial incentives for companies to become more environmentally friendly.

This research study analyzes carbon credit as a market-based tool for mitigating climate change based on the global carbon market, as well as, the Indian carbon market.

This research study reviews the processes that have occurred over time to develop carbon credit systems from the international level through the Kyoto Protocol to current activity being done under the Paris Agreement. This research utilized the secondary data obtained from organizations like the World Bank, International Energy Agency (IEA) and International Carbon Action Partnership (ICAP). Furthermore, this includes the analysis of carbon price trends, trading volumes and sector specific emissions. Additionally, this research compares mature carbon markets, like the European Union with emerging carbon markets such as China and also evaluates the rapidly developing framework for the carbon market and emission reduction targets for India.

The results of this study indicate that carbon credits have evolved into financial instruments which will impact corporate decision making and generate climate finance, as well as, support emissions reductions. While there are challenges within carbon markets, including price volatility, regulatory differences and measurement issues, there are many opportunities available for sustainable investment and the creation of policy development. The study concludes that with stronger regulation, transparency, and increased participation, carbon credits can play a vital role in achieving climate goals and promoting sustainable economic growth.

Keywords:

Carbon Credits; Climate Change Mitigation; Carbon Market; Greenhouse Gas Emissions; Sustainable Economic Growth