Carbon Market

The goal of the carbon market is to create economic incentives for businesses to reduce their carbon emissions while also providing flexibility in achieving those reductions. By putting a price on carbon, the market encourages innovation and investment in cleaner technologies, ultimately helping to mitigate climate change.

Carbon emissions fall into one of two categories, both of which can be bought and sold in the carbon market: Carbon credits or carbon offsets. The Carbon Market suggests for every tonne of carbon produced, it should be mitigated by capturing a tonne of carbon elsewhere. This can be through offsetting or insetting.

Carbon Credits and Carbon Offsets

Carbon Credits

Carbon Credits, also known as carbon allowances, represent the right to emit a tonne of carbon and can only be traded by companies or governments. When a company buys a carbon credit, they gain permission to generate one ton of CO2 emissions

Carbon Offsets

Carbon Offsets are a way of reducing the carbon created in the atmosphere available to smaller businesses, large corporations and individuals. When a company removes one unit of carbon from the atmosphere, they can create a carbon offset - other companies can purchase this carbon offset to reduce their own emissions

Insetting Carbon

Offset projects involve investing in activities that reduce, avoid, or remove greenhouse gas emissions elsewhere to compensate for emissions produced directly. These projects could include initiatives such as reforestation, renewable energy generation, methane capture from landfills, or energy efficiency improvements. Offsetting is typically done externally from the emitter's operations or supply chain, often through the purchase of verified carbon credits. The goal is to achieve carbon neutrality by balancing emissions with equivalent reductions elsewhere.

Offsetting Carbon

Insetting projects involve integrating emissions reduction projects directly into the operations or supply chain of a company. Instead of compensating for emissions externally, insetting focuses on reducing emissions internally or within the company's value chain. This approach often involves implementing sustainable practices, optimizing processes, improving energy efficiency, or investing in renewable energy within the company's own operations or among its suppliers. Insetting not only reduces emissions but also fosters resilience, innovation, and long-term sustainability within the company's core activities.

Carbon Markets

There are two separate carbon markets

  • The Regulated Market - the regulated market runs under “cap-and-trade” regulations.

    Every company is assigned a certain number of carbon credits annually. Some companies will exceed the credits they were assigned whilst others will produce fewer emissions and therefore have a surplus of credits. These companies who exceed their carbon allowance, may therefore purchase carbon credits from those with surplus to meet the regulations

  • This market is entirety voluntary. This contribution may be from environmentally conscious companies or individuals who want to protect the environment, due to social responsibility or as a PR tactic

    Unlike the Regulated markets cap-and-trade system, the Voluntary market uses a project-based system in which there is no limited supply of allowances and instead carbon credits are created through developing environmental projects

Production of Carbon Credits

Many different types of businesses can create and sell carbon credits by reducing, capturing, and storing emissions through different processes.

Some of the most popular types of carbon offsetting projects include:

  • Renewable Energy: Installing solar, wind, hydroelectric, or geothermal energy systems.

  • Energy Efficiency: Upgrading buildings or industrial processes to use less energy.

  • Forestry and Land Use: Afforestation, reforestation, and forest management to sequester carbon.

  • Methane Capture: Capturing methane from landfills, agriculture, or wastewater treatment plants.

  • Waste Management: Composting, recycling, and other methods that reduce emissions from waste.