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How many types of carbon markets are there?

Are carbon markets a good thing?

In simple terms, carbon markets function as trading platforms that allow carbon credits to be bought and sold.

A carbon credit that can be traded is one ton of carbon dioxide, or a similar of a greenhouse gas that is reduced by sequestration or elimination.

Why are carbon markets so important?

Recently the Intergovernmental Panel on Climate Change (IPCC) issued a new report on the progress made by humanity towards 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 sources are becoming affordable and often less expensive than oil, coal and gas.

Even with some improvements, the planet faces a huge task. Scientists warn that warming of 2degC will be surpassed in the 21st century, unless we can achieve massive reductions in greenhouse gas emissions right now.

Effective action requires adequate and concerted investment and investment, while also knowing that the price of inaction will be much greater. Countries in developing countries will need to invest at least 6 trillion dollars in 2030 to fund less than half of their climate goals (as as stated as part of the Nationally Determined Contributions (also known as NDCs).

The most recent IPCC report has found that the world is all falling far short, with flows of money at a rate of three to six times less than the levels required in 2030. There are even more stark differences in certain regions around the globe.

So, how can we facilitate and finance the necessary change to tackle this climate catastrophe? Many countries are considering the carbon credit exchange as a part of the solution.

How many carbon markets exist?

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

Markets for compliance are developed by any national, regional or international policy or regulation.

Voluntary carbon markets – both national and international, are the issue purchasing or selling carbon credit on a basis of voluntary.

The current supply of free carbon credits is mainly from private companies that design carbon projects or from governments who develop programs that are certified by carbon standards to generate emissions reductions and/or eliminations.

Demand is driven by private individuals who want to offset their carbon footprint, companies that have sustainability goals for their companies as well as other players who want to trade their credits for a higher value in order to make money.

Are there any examples?

One kind of compliance market people have heard of are the emissions trading systems (ETS). They operate on a “cap-and-trade” principle Regulated businesses – or even countries, in the EU’s ETS are issued pollution or emission permits, or allowances, by government officials (which can be used to reach an overall maximum (or capped) amount). Polluters who exceed their permissible emission levels must purchase permits from other companies with permits that are available 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 cover about one-seventh percent of carbon emissions worldwide resulting from burning of fossil fuels. Numerous other national and subnational ETS are currently in operation or in the process of being developed.