In the context of global efforts to reduce global temperature, “carbon credits” have entered a multi-billion dollar trade market, with the aim of reducing the environmental impacts of carbon emissions, in light of the efforts of several countries and companies to reach “net zero” emissions.
According to the United Nations Environment Program, carbon markets can “help reduce emissions” with specific and transparent rules.
According to the report, “Eco System Market Place”, the size of the “carbon credits” market reached regarding one billion dollars in 2021, according to a report published by the newspaper “”The Wall Street Journal“.
What are carbon credits?
According to the newspaper report, the basic concept behind carbon credits is activities that reduce carbon emissions to the atmosphere such as planting trees and reclamation of land. Dozens of private companies and non-profit organizations are developing such projects, assessing the level of carbon reductions and issuing emissions “credits”. A third party usually certifies the credits, confirming that projects exist and meet certain criteria.
Major companies buy these funds directly from project developers or intermediaries or receive them in exchange for project financing. Companies can then use these credits to reduce their net carbon emissions, a metric that consumers and investors are increasingly demanding to see. Many companies turn to these compensations to fulfill their pledges to achieve “net zero” carbon emissions.
Carbon credits, in their final form, are a type of permit measured by a unit of “ton” of carbon dioxide, which can be removed from the atmosphere, and can usually be purchased from companies specializing in reducing emissions, according to a previous report published by the network.NBC News“.
The report notes the existence of a so-called “voluntary” or “compliance” market for carbon credits.
What is the compliance market?
The carbon credits compliance market expresses the limits set by governments on the number of tons of emissions that certain sectors can emit, according to the NBC News report.
For example, if an oil company exceeds its emissions limit, it must buy or use saved credits to stay within the ceiling limits, and if it stays below permitted levels, it can sell or save its unused credits.
Europe, China, Australia and Canada have the largest carbon credits compliance markets.
How big is the carbon credits market?
According to Refinitiv, the global compliance market for carbon credits is regarding $261 billion, which is equivalent to 10 gigatonnes of carbon dioxide emissions.Carbon Credits“.
According to data released in June 2021 by the International Emissions Trading Association, traders in the European compliance market expect carbon prices to increase by 88 percent to $67 per metric ton by 2030.
What governs the carbon credits market?
The NBC News report notes that the voluntary market for carbon credits does not have a cap on the number of tons of emissions that can be offset, and there are few organizations that verify carbon credits.
The market relies on institutions and organizations setting approved standards for carbon credits, as well as creating guidelines for companies that buy carbon credits.
AndveraA Washington, D.C., nonprofit organization that has verified nearly 800 million units of carbon emissions in 1,750 projects worldwide, and has an approved standard for carbon credits.
The Wall Street Journal reports that a group ofin CMIUK, which represents the UK’s Voluntary Carbon Markets Integrity Initiative, providing guidance to buyers.
Criticisms of the carbon credits market?
Environmental companies and advocates criticize the carbon credits market, in the sense that projects that reduce carbon emissions are sometimes complicated or confusing, not to mention prices vary from a few dollars to thousands of dollars, according to the Wall Street Journal.
These companies point out that many factors make it difficult for executives, investors, and even consumers to measure the effectiveness of projects that generate carbon credits.