What are carbon markets
Carbon markets are market-based environmental policy instruments used to avoid, reduce, and/or remove greenhouse gas (GHG) emissions released into the atmosphere with the aim of mitigating catastrophic effects of climate change.
These mechanisms are designed as trading systems which allow investors and different entities to buy and sell carbon credits simultaneously, while also creating new market opportunities.
To meet the worldwide net-zero target, emissions must be reduced tremendously and with the current technologies this is prohibitively expensive. Carbon markets address this by creating a mechanism where emissions reductions and removals achieved in one place can be purchased or financed by entities seeking to claim a reduction of their footprint or to claim a contribution to overall mitigation.
Carbon markets have existed for several decades now. The first international participation took place in 1997 with the Kyoto Protocol, which mandated industrialized economies to limit and reduce their emissions. The Kyoto Protocol established two project based mechanisms to supply the Emissions Trading mechanism:
- Clean Development Mechanism (CDM)
- Joint Implementation (JI)
In 2015, the Paris Agreement, was adopted by 196 member countries, and established new goals to reduce global warming to 2°C, and pursue efforts to limit it to 1,5°C.
There are two main types of carbon markets: the Compliance Carbon Market and the Voluntary Carbon Market.
“Carbon is now tracked and traded like any other commodity”
Every carbon credit represents the certified reduction, avoidance or sequestration of one metric ton of carbon dioxide (CO2) or other equivalent greenhouse gas (GHG). A carbon credit can be use to compensate for GHG emissions made elsewhere by helping to finance projects that mitigate climate impact. They can also be used to meet a compliance obligation, or to make a contribution claim. A carbon credit must be real, permanent, measurable, additional, unique, and independently verified.
Carbon credits are transferrable instruments in the carbon markets which are certified by independent recognized standards (e.g., Gold Standard for the Global Goals) or by governments.
Purchasing carbon credits is one way for a company to address emissions it is unable to eliminate. Every carbon credit is traceable and finite; once used to offset any organization’s emissions, they are retired forever, and cannot be sold again.
After making every effort to reduce GHG emissions as much as possible, companies and/or individuals could want to offset the remaining GHG emissions. This can be done by purchasing carbon credits. This is a way to compensate your climate impact through the financing of carbon reducing/removing project activities and/or using renewable energy sources. This is a way to remain accountable and take climate action beyond one’s area of influence.