Trade Carbon Credits Do
While carbon markets have existed for decades, the resurgence in climate-related investment has prompted many to ask, “What does trade carbon credits do?” In short, it is a way to purchase and sell emissions reductions from projects that would otherwise not be profitable without the added benefit of offsetting greenhouse gas emissions. This allows both individuals and corporations to reduce their environmental footprint, while also potentially profiting from the increased demand for carbon credits that is a result of the climate crisis.
There are two significant types of trade carbon credits markets, compliance and voluntary. The former is created by national or international governmental regulations, such as those set by the 1997 Kyoto Protocol and the more recent Paris Agreement. Carbon credits are sold in this market to companies that exceed their emissions “cap.” Each credit represents one metric ton of carbon dioxide equivalent (CO2e) that has been removed from the atmosphere as a result of a project that meets specific carbon standards. These projects are then verified by third-party auditors before the credits can be traded.
Regulated markets require those who emit above a certain level of greenhouse gases to buy and sell allowances or credits to offset their excess emissions. These companies can purchase these credits from either the compliance or voluntary carbon markets.
What Does Trade Carbon Credits Do?
Unlike the regulated market, where businesses must participate, the voluntary carbon market is open to any business or individual that wishes to offset their emissions. These buyers can be anything from an environmentally conscious company that wants to demonstrate its social responsibility to an airline flying between two locations, buying credits to offset the carbon emitted as they fly.
For these companies, the benefits are similar to those of a carbon neutral business – but with a few notable differences. For one, the cost of purchasing and selling emissions reductions can be much lower than a regulated carbon market. This can make the option more attractive for companies that are not yet ready to invest in significant reductions of their own emissions.
As a result of the reduced costs, there is a greater diversity of supply and demand in the voluntary carbon market. This includes carbon credits purchased from projects that are certified to meet the highest carbon standards, such as those certified by BioCarbon Registry (formerly ProClima). These projects are verified by third-party auditors to ensure their emission reductions and removals are genuine.
These projects can range from community-based to industrial, and from small to large in scale. They may also generate additional co-benefits, such as improved water quality, or be located in remote and/or rural areas, making them more expensive to certify than those that do not meet these criteria.
Because of this, the price of carbon credits can vary from market to market. For example, a carbon credit in the EU’s Emissions Trading Scheme (EU-ETS) traded for around $72 in October of 2022, while those in California’s voluntary carbon market were selling for around $29. The price can also be affected by the overall economic environment and investor sentiment.