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The Advantages of Carbon Markets

Recently the Intergovernmental Panel on Climate Change (IPCC) published a brand new report on the world’s progress toward decreasing climate changes. 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, more affordable than oil, coal, and gas.

Although there has been some improvement, planet is facing a daunting task. Scientists warn that warming of 2 degrees Celsius could be over the limit by the 21st century, unless we can achieve massive reductions in greenhouse gas emissions in the near future.

Effective action will require coordinated and adequate investment, recognizing that the price of inaction are far greater. Countries in developing countries will require as much as $6 trillion by 2030 to finance only the half of their climate change objectives (as as stated within the Nationally Determined Contributions, also known as NDCs).

The most recent IPCC report has found that the world is all falling shortof their goals, with financial flows between three and six times lower 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 our climate crises? A lot of countries are considering carbon markets as a part of the solution.

How do carbon markets work?

In simple terms, carbon markets function as trading platforms that allow carbon credits to be traded and purchased.

One carbon credit tradable equals one tonnes of carbon dioxide , or the same of another greenhouse gas that is reduced by sequestration or avoided.

What types of carbon markets exist?

There are generally two kinds that exist in carbon market: voluntary and compliance.

Markets for compliance are developed by any regional, national and/or international regulatory or policy requirement.

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 companies that design carbon projects or from governments who create programs that are accredited by carbon standards which produce emission reductions and/or removals.

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The demand comes from private citizens who want to offset their carbon footprint, companies who have sustainability goals for their companies as well as other players who want to exchange credits for a greater price to make money.

Which are the best examples?

One kind of compliance market that a lot of people have heard of are the emissions trading systems (ETS). They operate on a “cap-and-trade” principle that regulates businesses or even nations, as in the EU’s ETS are given emission or pollution permits or allowances from government officials (which total to the maximum amount (or capped) amount). Polluters who exceed their permissible emission levels must purchase permits from other companies with permits that are available 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 be covering around one-seventh carbon emissions worldwide resulting from the burning of fossil fuels. A number of subnational and national ETS are currently in operation or in the process of being developed.