How does a Carbon Offsetting trading scheme work?
Companies A and B each emit 100,000 tonnes of CO2 per year. The government has given each of them an allowance for 95,000 tonnes, leaving them with a 5,000 tonnes shortfall. They now have the following options: Reduce emissions by 5,000 tonnes Purchase the equivalent amount through an approved CO2 trading scheme Combine the two strategies Assuming a market price of £10 per tonne of CO2, the companies calculate the most effective way to meet their requirement is this: Company A: To cover its 5,000 tonnes shortfall via the trading scheme, Company A would have to pay £50,000. However, Company A determines that cutting its emissions will actually only cost the company £5 per tonne, which is cheaper than buying allowances. In addition the company therefore cuts another 5,000 tonnes of emissions. The company has now spent £50,000 on cutting its emissions by 10%, yet it has made that same amount again by selling its surplus allowance of 5,000 tonnes through the trading scheme at the £10 per t
