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What are carbon markets?

Recently the Intergovernmental Panel on Climate Change (IPCC) published a brand new report on the world’s progress toward slowing the pace of climate change. The bad news is that greenhouse gas (GHG) emissions are increasing in all major industries across the globe, but at a slower rate. One of the positives is that renewable energy is now affordable – less expensive than oil, coal and gas.

Even with some improvements, the planet is facing a daunting problem. Scientists warn that 2 degrees Celsius of warming will be surpassed in the 21st century, unless we can achieve significant reductions in emissions of GHG today.

Effective action requires concerted and adequate investments, knowing that the cost of inaction are far greater. The developing world will require as much as 6 trillion dollars in 2030 to fund not only the half of their climate change targets (as stated as part of the Nationally Determined Contributions (also known as NDCs).

The most recent IPCC report shows that the world is all falling shortof their goals, with financial flows at a rate of three to six times less than the levels required by 2030 . And there are more stark differences in certain regions around the globe.

How do we accelerate and finance the necessary change to tackle this climate catastrophe? Many countries are considering carbon markets as a part of the solution.

Are carbon market markets a good thing?

In a nutshell carbon markets function as trading platforms where you can trade carbon credits.

A carbon credit that can be traded is one tonnes of carbon dioxide , or the same of a greenhouse gas that has been reduced by sequestration or avoided.

What types of carbon markets exist?

There are generally two kinds market for carbon: voluntary and compliance.

Markets for compliance are developed due to any regional, national and/or international policy or regulation.

Voluntary carbon markets, both national and international, are the issue purchasing and selling of carbon-based credits on a basis of voluntary.

The present supply of voluntary carbon credits is mostly provided by private firms that create carbon projects, or from governments who develop programs that are accredited by carbon standards which result in emission reductions or removals.

The demand comes from private citizens who wish to pay for their carbon footprint, businesses who have sustainability goals for their companies as well as other players who want to sell credits for a greater price to make money.

Which are the best examples?

One kind of market for compliance that many people have heard of is the emissions trading system (ETS). They operate on a “cap-and-trade” principle Regulated businesses – or even countries, in the EU’s ETS and ETS – are issued pollution or emission permits or allowances by government officials (which total to the maximum amount (or capped) amount). Polluters who exceed their permissible emissions are required to purchase permits from those who have permits to purchase (i.e. trading).

The European Union launched the world’s first international ETS in 2005. In the year 2005, China launched the world’s largest ETS which is expected to be covering around one-seventh carbon emissions globally resulting from burning of fossil fuels. Numerous other national and subnational ETS are currently in operation or in the process of being developed.