The First Step To Carbon Neutral Is Learning How The System Works
- Media Manager
- May 2, 2023
- 1 min read
Forbes
Written By: Shashi Menon
Published: May 3rd, 2023
What Are Carbon Markets?
Regulated Markets
There are two types of carbon markets: regulated and voluntary. Regulated markets are managed by governments. According to the World Bank, there are around 70 of these programs globally, and they regulate about 12 gigatons of CO2 (about 23% of global emissions). Major markets created by these programs include the European Emissions Trading Scheme (ETS) and the California Carbon Allowances (CCA).
Regulated ETS or cap-and-trade markets typically establish a cap on emissions and lower the cap each year for industries operating within their jurisdiction.
Unused allowances can be sold, motivating companies to reduce their emissions and sell unused allowances. You can think of these as a license to pollute and the license gets a little more expensive each year thus incentivizing the industry to pollute less.
Voluntary Markets
Voluntary carbon markets are supported by entities such as the earlier-mentioned Climate Action Reserve along with others like South Pole, Terrapass Review and many others. They create “offsets” from verified carbon reduction projects that the private sector can purchase. In other words, instead of lowering emissions from their own operations, hard-to-abate industries can finance emissions reductions in off-site projects.
A look through some protocols can give you an example of these projects: Preserving forests, managing grasslands, low-emissions rice cultivation, livestock methane capture, organic waste diversion, etc.
