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How many types of carbon markets are there?

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Recently the Intergovernmental Panel on Climate Change (IPCC) issued a new report on the world’s progress toward slowing the pace of climate change. The bad news is that greenhouse gas (GHG) emissions are increasing in all major industries across the globe, but at a slower rate. The good news is that renewable energy is now affordable – more affordable than oil, coal and gas.

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

Effective action will require coordinated and adequate investment, recognizing that the price of not taking action will be much more costly. The developing world will require as much as $6 trillion in 2030 to fund not only the half of their climate change objectives (as as stated as part of the Nationally Determined Contributions, also known as NDCs).

The most recent IPCC report has found that the world is all falling far short, with flows of money between three and six times lower than what is needed by 2030 . And there are strikingly different in certain regions around the globe.

So , how can we facilitate and finance the change needed to solve our climate crises? A lot of countries are considering carbon markets as a part of the solution.

Are carbon market markets a good thing?

In simple terms, carbon markets refer to trading platforms where carbon credits can be traded and purchased.

A carbon credit that can be traded is one ton of CO2 or an equivalent of another greenhouse gas that is reduced by sequestration or avoided. For more information on how to trade carbon credits, visit this website.

What types of carbon markets exist?

There are two main types market for carbon: voluntary and compliance.

Markets for compliance are developed due to any regional, national and/or international policy or regulation.

Voluntary carbon markets – both national and international are the issue purchasing or selling carbon credit on a basis of voluntary.

The present supply of voluntary carbon credits is mostly provided by private companies that design carbon projects or from governments who develop programs that are accredited by carbon standards which produce emission reductions and/or removals.

Demand is driven by private individuals who wish to pay for their carbon footprint, companies that have sustainability goals for their corporate operations and other entities that want to sell credits at a higher cost in order to earn a profit.

Which are the best examples?

One kind of market for compliance that many people are familiar with are the emissions trading systems (ETS). They operate on a “cap-and-trade” principle Regulated businesses – or even countries, in the EU’s ETS and ETS – are issued pollution or emission permits or allowances by government officials (which can be used to reach an overall maximum of a certain amount, or limit). Polluters who exceed their permissible emissions are required to purchase permits from those who have permits that are available to purchase (i.e. trading).

The European Union launched the world’s first international ETS in 2005. The year before, China launched the world’s largest ETS which is expected to cover about one-seventh of carbon emissions globally resulting from burning of fossil fuels. A number of subnational and national ETS are in operation or in development.