Understanding Carbon Markets: A Guide to Credits and Trading
Carbon markets enable the trade of carbon credits, allowing entities to meet emission reduction goals by purchasing the right to emit carbon dioxide or other greenhouse gases. The markets are divided into compliance and voluntary systems, with compliance markets being far larger, valued at $850 billion as of 2021.
Carbon markets are systems that allow companies and organizations to buy and sell carbon credits to reduce overall greenhouse gas emissions. These markets operate as either compliance systems, such as government-run cap-and-trade programs, or as voluntary platforms. In a cap-and-trade program, governments cap emissions at certain levels and assign limits to participants. Entities can create carbon credits by reducing or removing carbon dioxide, which they can then sell. Each carbon credit is equal to one metric ton of carbon dioxide. There are two basic types of carbon markets: compliance and voluntary, with around 30 compliance carbon markets worldwide, valued at $850 billion as of 2021.
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