Alternative Investments Explained: Carbon Credits


Alternative Investments Explained: from bamboo to precious metals, we break down the alternative products vying for your cash and assess which assets are worth taking the plunge for.

This week, carbon credits get the cross-examination treatment:

Carbon credits were first introduced as an environmental measure, designed to help companies, individuals and countries to mitigate their increasing emissions of greenhouse gases.

They are defined as: "A certificate showing that a government or company has paid to have a certain amount of carbon dioxide removed from the environment."

As greenhouse gases grow in the atmosphere, global warming is exacerbated, placing the Earth at greater natural risk. But by buying carbon credits, this rise can be offset.

One carbon credit tends to be equal to one tonne of carbon dioxide, with credits then going towards funding carbon reduction schemes around the world, helping to encourage alternative systems that emit fewer gases.

Over time, this has turned from an international scheme into a commodity market. Carbon offsetters can now buy carbon credits from traders and companies that have aggregated credits together. As a a result, investors can now buy and sell credits with firms and individuals, generating returns through the trading process.

As greenhouse gases become more vital for the Earth's future and more companies decide to offset their emissions, the carbon trading market continues to grow exponentially, potentially without limit.

The long-term potential for returns as well as the moral payoff that goes with an ethical investment opportunity make many investors choose to invest in carbon credits , giving them a chance to secure the future of their funds as well as the planet.