Unless you have been hiding under a big block of coal for the past six years you should have heard someone mention the mysterious term ‘carbon credit’

Unless you have been hiding under a big block of coal for the past six years you should have heard someone mention the mysterious term ‘carbon credit’.

You just might not be that sure what it means. Allow us to explain.

These certificates are given to organisations around the world that either 1) create projects to clean up the environment - measured by the amount of carbon dioxide (CO2) they reduce - or 2) clean up their own organisation, reducing their greenhouse gas emissions.

Unless you have been hiding under a big block of coal for the past six years you should have heard someone mention the mysterious term ‘carbon credit’

For each tonne of CO2 saved, the entity receives a carbon emission certificate.

Some joke that it is like selling fresh air - and in some ways it is - but this carbon credit certificate is a freely tradable commodity similar to any other, such as gold, oil or coffee beans. Once a carbon credit is verified it is valued at the market price, which moves up and down the same way as any other, depending upon the demand and supply conditions at the time.

But while the prices of some of the more common commodities have been on a roller-coaster ride in recent years, investors who have purchased carbon credits have largely been smiling about their returns, with a recent report from the World Bank showing the market is up 11 per cent already this year.

Holders of carbon credits saw their investment increase in value by 30.2 per cent in 2011. As the idea catches on and companies and governments continuing to turn to emissions trading as a tool for fighting climate change, demand for carbon credits is likely to continue to outstrip supply.

Even if you take such forecasts with a pinch of salt, what can’t be denied is that getting into the carbon credit market helps organisations offset the environmental damage they create in the course of their business.

Some of the world’s top firms are getting involved. Only recently Microsoft announced it plans to go carbon neutral by unveiling targets for the emissions created by its air travel, data centres and offices. Elsewhere, one of the world’s largest retailers, Marks and Spencer, just became carbon neutral in the UK, and even the Canadian Olympic team has decided to offset its emissions.

In motorsport, the Abu Dhabi Desert Challenge in March of this year led the way by signing a deal to offset any environmental damage from the 2012 event and the Lotus Formula One Team has now committed to going carbon neutral - all contributing to the increased profile and high demand for voluntarily buying and retiring carbon credits for the good of the planet.

Charles Stephenson is a director of Advanced Global Trading (AGT), a world leader in VCS verified carbon credits. For more information, contact: c.stephenson@advancedglobaltrading.com