Previous Year Question

The concept of Carbon Credit received its formal foundation in international climate policy through the Kyoto Protocol. It was adopted on 11 December 1997 at the Third Conference of the Parties (COP3) to the United Nations Framework Convention on Climate Change (UNFCCC) in Kyoto, Japan. It entered into force on 16 February 2005. The Protocol established binding Greenhouse Gas Emission Reduction Targets for specified groups of developed countries and economies in transition.

A Carbon Credit is generally a Tradable Unit representing a verified reduction in Greenhouse Gas Emissions or their Removal from the atmosphere. It is commonly measured in metric tonnes of Carbon Dioxide Equivalent (CO₂-equivalent). In Regulated Carbon Markets, an Emission Allowance and a project-generated Emission Reduction Credit are distinct instruments. The Kyoto Protocol developed market-based arrangements through which eligible countries could fulfil part of their emission reduction commitments.

The Kyoto Protocol established three major market-based mechanisms—the Clean Development Mechanism (CDM), Joint Implementation (JI), and International Emissions Trading. Under the CDM, emission reduction projects in developing countries could generate Certified Emission Reductions (CERs). One CER represents one metric tonne of CO₂-equivalent emission reduction. These credits could be used towards meeting the emission targets established under the Kyoto Protocol.

Among the other options, the Rio Earth Summit (1992) opened the UNFCCC for signature, establishing the foundation for international climate cooperation. The Montreal Protocol (1987) primarily aims to phase out the production and consumption of substances that damage the ozone layer. The G8 Heiligendamm Summit (2007) discussed climate change and emission reductions, but the carbon credit framework had already been developed under the Kyoto Protocol.