Trade Carbon Emission
Trade carbon emission credits – also called offsets or carbon sequestration – are an effective means to reduce greenhouse gas emissions. They are purchased and held by businesses that have reduced their emissions or are committed to doing so.
Voluntary trade carbon credits markets have been around since the early 2000s, and are gaining traction as public and private companies make commitments to reduce their environmental footprint. These voluntary carbon markets are not limited by boundaries set by nation states or political unions and have the potential to be accessed by all sectors of the economy.
As of 2021, voluntary carbon markets are expected to account for 15% of global CO2 emissions and are likely to be worth $50 billion annually by 2030. This growth will come from a mix of new investors, companies and other stakeholders, as well as from existing companies that have decided to go voluntary, like oil and gas majors, hedge funds and banks.
Trade Carbon Emission Credits
The market for carbon emission credits is growing quickly mainly due to the recent wave of public and private commitments by businesses and governments to reduce their environmental footprints. These efforts include mandatory carbon cap-and-trade programs such as the Regional Greenhouse Gas Initiative (RGGI) in the United States and climate change taxes or subsidies in a number of countries.
These programs typically limit the amount of greenhouse gases that companies can emit by requiring them to buy or sell permits for each ton of emissions they produce. These permit allocations are either a fixed value, known as an emissions cap, or they are flexible and can vary based on the company’s size, business strategy, location and other factors.
Credits can be traded through private cap-and-trade markets or through international emission trading systems, such as the European Union Emission Trading System (ETS) and the Australian Emissions Trading Scheme. The most common form of carbon credits are certified emission reductions, or CERs.
There are four main players in the carbon markets: the registries that issue the CERs, the retailers and brokers that buy the credits from the registries, and the end buyers who purchase them from the retailers. The registries are responsible for issuing and validating the CERs.
Retail traders purchase large amounts of carbon emission credits from the registries and bundle them into portfolios ranging from hundreds to thousands of equivalent tons of CO2. They then sell the bundled CERs to their customers, usually with some commission.
These transactions can occur in a variety of ways, but the most common is through a brokerage. Brokers work with their clients to identify the most profitable way to trade the credits and then manage the entire transaction.
As with other commodities, there are a number of standardized products available on exchanges. These standardized products allow for more flexibility, allowing traders and financial players to invest in the market for carbon credits.
However, some end buyers prefer to purchase non-standardized products in order to ensure that the credits they are purchasing represent genuine carbon reductions. These non-standardized products often involve a larger volume of transactions, as they can be used to settle bilateral deals that have been negotiated offscreen by the parties involved.