Are carbon markets a good thing?
In simple terms, carbon markets refer to trading platforms where carbon credits can be bought and sold.
A carbon credit that can be traded is one ton of CO2 or an equivalent of another greenhouse gas that is reduced by sequestration or elimination.
Why is the carbon credit exchange so important?
Recently the Intergovernmental Panel on Climate Change (IPCC) issued a new report on the progress made by humanity towards, reducing the rate of change in climate. The bad news is that Greenhouse gas (GHG) emissions are increasing across all major sectors across the globe, but at a slower rate. One of the positives is that renewable energy sources are becoming affordable and are often cheaper than oil, coal, and gas.
Although there has been some improvement, 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 GHG emissions today.
A successful action will require adequate and concerted investment in the knowledge that the price of inaction will be much greater. The developing world will require as much as 6 trillion dollars by 2030 to fund just a fraction of their climate goals (as stated within the Nationally Determined Contributions (also known as NDCs).
The most recent IPCC report shows that every country is falling short of their goals, with financial flows at a rate of three to six times less than the levels required in 2030. There are even strikingly different in certain regions around the globe.
So, how can we facilitate and finance the necessary change to tackle this climate catastrophe? Many countries are looking at carbon markets as a part of the solution.
What kinds of carbon markets exist?
There are two main types in carbon market: voluntary and compliance.
Markets for compliance are developed due to any regional, national and/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 present supply of voluntary carbon credits is mostly provided by private companies that design carbon projects or from governments who create programs endorsed by carbon standards to generate emissions reductions or removals.
The demand comes from private citizens who wish to pay for their carbon footprints, businesses who have sustainability goals for their businesses and other actors who wish to trade their credits at a higher cost in order to make money.
Are there any examples?
One kind of compliance market 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 instance of the European Union’s ETS are issued pollution or emission permits or allowances by government officials (which total to an overall maximum of a certain amount, or limit). Polluters who exceed their allowed emissions are required to purchase permits from those who have 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 that is estimated to cover about one-seventh percent 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.
