What Is The Carbon Market?

Carbon trading (or carbon trading) is system based on markets created to decrease greenhouse gases that cause global warming, particularly carbon dioxide, through the creation of incentives for doing this.

How does the market function, and how carbon offsets are a part of the equation?

What is the Carbon Market?

Although it is described as a market however, there are actually many markets where you are able to trade carbon credits. Carbon credits that are purchased and sold on one market may not be applicable in another.

The term”carbon trading” typically used to refer to the market for compliance that exists for carbon credits in an approved scheme, for example, the European Union Emissions Trading Scheme (EU ETS) as well as California’s greenhouse gas scheme , or the Regional Greenhouse Gas Initiative (RGGI) in the northern part of the United States.

These mandated schemes require companies that emit more than a certain threshold, or that are in certain industries, like power plants using fossil fuels to receive an allowance, which is a credit or allowance, in exchange for every one tonne of equivalent carbon dioxide they emit each year.

Participants can receive an initial amount of carbon credits at no cost, or participate in an auction to purchase carbon credits. Businesses that later reduce their emissions are able to sell the excess carbon credits to others with higher emissions which will result in carbon being commoditized and creating an market.

Regulated carbon markets typically are only trading within their carbon allowances. However, carbon offsets to replace some of the credits is permissible in certain schemes, provided they are in compliance with strict rules of regulation.

Where does Voluntary Carbon Offsetting fit in?

The second type of carbon market depends on the production of carbon offsets. They can be purchased by any organization, business or person to offset their emission of greenhouse gases, on a non-commitment basis.

The purchasers in the market for voluntary carbon usually are businesses who have already implemented plans for carbon reduction to reduce emissions from their activities to the extent that is feasible. To reach zero emissions carbon neutrality, zero emissions, as well as other corporate social responsibility (CSR) goals They decide to purchase carbon offsets through an initiative that has cut or eliminated emissions from other sources.

The sellers on the market for voluntary carbon are project designers who develop and implement carbon reduction initiatives in line to the specifications that are set by one of these standard bodies that are voluntary. Every ton of CO2 emissions eliminated is able to be traded to offset carbon which compensates for a ton of CO2 that is emitted elsewhere.

Since the market for voluntary offsets is fragmented and global, the majority of project developers offer offsets through a broker or retailer who is responsible in promoting offsets and locating buyers.

What’s the Benefit of Buying offsets from the Voluntary Market?

As a participant mandated to participate of an emission trading program, there’s no sustainability or CSR value in compliance activities on their own.

Any business, non-profit or other non-profit organization is able to purchase voluntary carbon offsets even if they already have an obligatory regulated market.

Organisations that invest in offsets that are voluntary show their dedication to tackling global climate change, while also reducing their environmental impact and are generally viewed better by eco-conscious consumers.

Additionally, by selecting progressive offsets, companies can meet social, environmental , and other CSR objectives while doing so and also make a significant impact on the communities that are involved.