Are carbon markets a good thing?
In a nutshell carbon markets function as trading platforms where carbon credits can be traded and purchased.
A carbon credit that can be traded is one tonnes 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) published a brand new report card of the progress made by humanity towards slowing the pace of climate change. The bad news is that Greenhouse gas (GHG) emissions are increasing across all major sectors worldwide, though at a slower rate. The good news 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 warming of 2degC could be reached in the 21st century, unless we can achieve significant reductions in GHG emissions today.
A successful action will require adequate and concerted investment and investment, while also knowing that the price of inaction will be much greater. The developing world will require at least 6 trillion dollars by 2030 to fund just a fraction of their climate targets (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 between three and six times lower than what is needed in 2030. There are even more stark differences in certain regions around the globe.
How do we accelerate and finance the necessary change to tackle this climate catastrophe? Many countries are looking at carbon markets as a part of the solution.
How many carbon markets exist?
There are generally two kinds market for carbon: voluntary and compliance.
Markets for compliance are developed by any regional, national and/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 mostly provided by private firms that create carbon projects or from governments who develop programs that are certified by carbon standards, which result in emissions reductions or removals.
The demand comes from private citizens who wish to pay for their carbon footprint, companies who have sustainability goals for their businesses and other actors who wish to trade their credits at a higher cost in order to earn a profit.
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Are there any examples?
One kind of compliance market that a lot of people have heard of is the emissions trading system (ETS). Based on the “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 can be used to reach the maximum amount (or capped) amount). Polluters who exceed their permissible emission levels must purchase permits from other companies with permits 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 that is estimated to cover about one-seventh percent of carbon emissions worldwide resulting from burning of fossil fuels. A number of subnational and national ETS are currently in operation or in development.