What is the concept of carbon credits in relation to distributed generation?

Carbon credits are permits that allow organizations or individuals to emit a specific amount of carbon dioxide (CO2) or other greenhouse gases. This mechanism is designed to incentivize reductions in greenhouse gas emissions by establishing a market for emissions. Each carbon credit typically represents one metric ton of CO2 that can be emitted.

In relation to distributed generation, which often includes renewable energy sources, the concept is significant because it can provide financial benefits to facilities that generate energy through low or zero-emission technologies. By producing renewable energy, these installations may generate carbon credits that can be sold or traded, thereby providing an additional revenue stream and promoting cleaner energy production.

This system encourages emissions reduction since companies and entities that exceed their carbon allowance must either reduce their emissions or purchase additional credits, driving innovation and investment in cleaner technologies. Thus, the concept of carbon credits aligns well with the goals of distributed generation, which seeks to increase the use of cleaner energy sources and reduce overall carbon footprints.