Trade Carbon Credits
Trading carbon credits is an emerging market where companies and individuals compensate their emissions by purchasing tradable certificates. These credits are designed to help companies meet sustainability goals, such as reducing their greenhouse gas (GHG) emissions by a certain amount.
Credits are issued by a number of entities, including government agencies or private businesses. They are usually certified by standards that guarantee they reduce emissions or remove carbon from the atmosphere. Traders can buy and sell them to other companies that are also trying to cut their emissions. These transactions are regulated by jurisdictions that have established cap-and-trade systems for carbon, such as the state of California.
There are two kinds of trade carbon credits markets: the regulatory market and the voluntary market. The regulatory market, such as the state of California’s cap-and-trade program, requires that companies limit their carbon dioxide emissions to a certain level. Those that exceed this cap will be penalized by fines and taxes.
What Does it Mean to Trade Carbon Credits and Why is it Important?
This cap is determined by the size and efficiency of a company’s operations, based on its carbon footprint and how well it meets industry benchmarks. Some companies have older and less efficient operations than others, which means they may produce more emissions than the number of credits they receive from their government each year.
Many large, environmentally conscious companies have already set out plans to offset their emissions. However, there’s often a shortage of credits available to cover the gap between what a business is producing and what they’re allowed to emit. A good way to address this is by creating a new type of market, called a ‘credits exchange’. These markets will provide a marketplace for trading credits, while also regulating them by setting quality criteria and providing liquidity.
In addition, a credit exchange can also create standard products for the various types of carbon credits, which ensure that a certain set of characteristics are met. These include: Nature-based solutions, which capture and store CO2 from the atmosphere or plant trees to avoid carbon from being released into the air.
These projects tend to trade at a premium over other credits, not just because of their high demand, but also because they’re believed to be a more effective way to help meet climate goals than the avoided emissions category. The voluntary market is still nascent, but it has the potential to help companies meet ambitious goals.
There are a number of challenges that need to be addressed to strengthen the voluntary market and support climate action on a larger scale. These include: Ensure a sufficient supply of high-quality carbon credits that meet quality criteria, such as avoiding or removing carbon from the atmosphere and providing additional benefits, like community economic development or biodiversity protection. Create a robust, liquid market for these credits to make them readily available to buyers and sellers alike. Improve the speed and reliability of price signals on exchanges.