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Why Are Carbon Markets Important?

Recently the Intergovernmental Panel on Climate Change (IPCC) published a brand new report card of the progress made by humanity towards the slowing of climate change. The bad news is that greenhouse gas (GHG) emissions are rising across all major industries worldwide, though at a slower rate. The good news is that renewable energy sources are becoming affordable, more affordable than oil, coal and gas.

Even with some improvements, the planet faces a huge task. Scientists warn that warming of 2 degrees Celsius could be achieved in the 21st century, unless we can achieve massive reductions in greenhouse gas emissions in the near future.

Effective action requires concerted and sufficient investments, understanding that the cost of not doing anything will be greater. Countries in developing countries will require at least 6 trillion dollars in 2030 to fund not only the half of their climate change targets (as stated within the Nationally Determined Contributions, also known as NDCs).

The most recent IPCC report has found that the world is all falling shortof their goals, with the flow of money being three to six times less than the levels required in 2030. There are even strikingly different in some regions around the globe.

How do we accelerate and finance the change needed to solve our climate crises? A lot of countries are looking at carbon markets as a part of the solution.

How do carbon markets work?

In simple terms, carbon markets refer to trading platforms that allow carbon credits to be traded and purchased.

One carbon credit tradable equals one tonnes of CO2 or an equivalent of a greenhouse gas that is reduced to a minimum, sequestered or eliminated.

What kinds of carbon markets exist?

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

Markets for compliance are developed due to any national, regional or international regulatory or policy requirement.

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

The current supply of free carbon credits is mostly from private firms who design carbon projects or government agencies that create carbon standards-certified programs which result in emission reductions or removals.

The demand comes from private citizens who want to offset their carbon footprint, companies that have sustainability goals for their corporate operations and other entities that want to exchange credits for a greater price to make money. Visit to learn more.

Are there any examples?

One kind of compliance market that a lot of people have heard of are the emissions trading systems (ETS). Based on the “cap-and-trade” principle that regulates businesses or even countries, in the instance of the European Union’s ETS and ETS – are issued pollution or emission permits or allowances by government officials (which total to an overall maximum (or capped) amount). Polluters who exceed their allowed emissions are required to purchase permits from other companies with permits that are available to purchase (i.e. trade).

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