CARBON MARKET

Carbon market

A trading system that enables countries to sell and receive greenhouse gas emissions as part of their efforts to meet their national limits on greenhouse gas emissions in accordance with the Kyoto Protocol or other appropriate agreements.

The Carbon Market refers to a system where carbon emissions are bought and sold as part of efforts to reduce global greenhouse gas emissions. It is an economic tool designed to tackle climate change by assigning a monetary value to carbon dioxide (CO₂) emissions, encouraging organizations and countries to reduce their emissions through market mechanisms.

Key Concepts of the Carbon Market:

1. Carbon Allowances:

   • Governments or regulatory bodies set a cap (limit) on the total emissions allowed for a specific region or sector.
   • Companies are issued carbon allowances, permitting them to emit a certain amount of CO₂.
   • If a company emits less than its allowance, it can sell the surplus to others. If it emits more, it must purchase extra allowances.

2. Carbon Credits:

   • One carbon credit represents one metric ton of CO₂ reduced or removed from the atmosphere through activities like renewable energy projects, reforestation, or energy efficiency improvements.
   • Companies can buy these credits to offset emissions they cannot reduce directly.

3. Trading:

   • Companies trade carbon allowances or credits in a marketplace, creating financial incentives to reduce emissions.

Types of Carbon Markets:

1. Compliance Carbon Markets:

   • Regulated by governments to ensure industries meet specific emission reduction targets.
   • Example: European Union Emissions Trading System (EU ETS).

2. Voluntary Carbon Markets:

   • Companies or individuals voluntarily buy carbon credits to offset their emissions as part of sustainability or corporate social responsibility (CSR) goals.

Purpose:

The main goal of the carbon market is to make polluting expensive and reducing emissions financially rewarding, thereby driving innovation and investment in cleaner technologies.