Generates Carbon Credit Exchanges
Carbon credit exchanges connect businesses and individuals with projects that capture and reduce carbon emissions. These projects include everything from reforestation to technology-based carbon removal. Purchasing and selling credits is one way for market participants to comply with government-imposed carbon limits or demonstrate that they have a net-zero emissions goal. The best carbon credit exchanges offer a robust infrastructure for trading, post-trade and clearing, financing, and advanced data. They also provide standards and guidance for carbon project developers.
carbon credit exchange are essentially a permit or allowance to emit a certain amount of carbon dioxide equivalent in one year. They are most often issued as part of a regulatory program such as an Emissions Trading Scheme (ETS) or a Clean Development Mechanism. In these programs, regulators set an emissions limit or cap and reduce it over time, forcing companies to buy or sell credits to stay within the cap.
Some countries and states also have their own ETS-type systems. The Paris Agreement on climate change, which aims to limit the global temperature increase to 2°C above pre-industrial levels by the end of this century, will likely fuel more growth in these markets.
Who Generates Carbon Credit Exchanges?
In the voluntary carbon market, the buyer can be any business or individual who wants to reduce their environmental footprint or offset their emissions for a variety of reasons. They may be a green investment fund seeking to invest in low-carbon assets, an environmentally conscious company that wants to show its customers that it’s reducing its environmental impact, or an individual traveler who wants to offset their air miles by supporting carbon neutral projects in the places they visit.
The projects that generate carbon credits are as diverse as the buyers. The price of a carbon credit can vary widely, too, depending on the type of project and the attributes it has. For example, credits from reforestation or afforestation projects tend to be less expensive than those from tech-based projects such as CCS.
To help standardize these differences, many exchanges have developed “reference contracts” that combine a core contract, based on the core carbon principles and standard attributes, with additional attributes defined according to a standard taxonomy and priced separately. These reference contracts make it easier for companies to meet their compliance obligations, while still providing flexibility for traders and investors.
Despite these challenges, the carbon credit market is growing in size and scope. The number of carbon pricing programs globally has risen from six to more than 180. While some of these are carbon taxes, most are ETS-type schemes and include international programs like the Kyoto Protocol and the Paris Agreement as well as national or state programs such as the Emissions Trading System in the EU and California’s cap and trade program.