How does emission credit trading - Offset work?

Emission credit trading, specifically the concept of offsets, allows businesses to account for their emissions in a flexible manner. In this system, a company that increases its emissions can offset this increase by purchasing emission credits from another entity that has reduced its emissions. These credits typically represent a quantifiable reduction of greenhouse gases achieved elsewhere.

This mechanism provides an economic incentive for companies to invest in cleaner technologies or practices, as they can earn credits by reducing emissions beyond their regulatory requirements. By allowing businesses to buy these credits, the overall emissions can be reduced in a cost-effective way. The flexibility of this system encourages participation and fosters a market for emissions reductions while still holding businesses accountable for their environmental impact.

This approach contrasts with options like fining businesses for new emissions, which creates a punitive effect rather than an incentivizing one, or restricting emissions to specific plants, which does not take advantage of market mechanisms. Allowing unlimited expansions without restrictions would undermine environmental goals entirely by potentially increasing overall emissions without accountability.