Carbon Credit
Last updated
Last updated
The Kyoto Protocol of 1997 and the Paris Agreement of 2015 are international agreements that set global CO2 emissions targets. With nearly all countries ratifying the Paris Agreement, these accords have led to national emissions targets and supporting regulations. As these regulations take effect, businesses face increasing pressure to reduce their carbon footprints, often turning to carbon markets as an interim solution.
Carbon markets commodify CO2 emissions by assigning them a price. Emissions are categorized into carbon credits or carbon offsets, both of which can be traded. Despite forming two distinct markets, the basic unit traded is the same: one ton of carbon emissions, or CO2e.
To put it in perspective, the average American generates 16 tons of CO2e annually through everyday activities like driving, shopping, and using household energy. For example, driving a 22 mpg car from New York to Las Vegas would produce one ton of CO2e.
Carbon credits are issued by national or international governmental bodies, with the Kyoto and Paris agreements establishing the first international carbon markets.
Voluntary carbon credits are audited by international institutions and registered with global registries, adhering to strict global protocols.
Certified carbon credits do not expire until they are used or canceled by an entity aiming to offset its GHG emissions.
Carbon credits are intangible assets, similar to mileage points or brands, and are traded as digital certificates, usually in US dollars.
The global carbon credit market was valued at USD 479.41 billion in 2023 and is projected to grow at a CAGR of 39.4% from 2024 to 2030. The increasing demand for carbon credits is driven by government policies and regulations aimed at reducing GHG emissions. For instance, India’s Energy Conservation Bill, 2022, facilitates the establishment of carbon credit markets. The market’s growth is fueled by a mix of state-level programs and voluntary markets.
Alongside regulated markets, a voluntary global market exists with internationally recognized protocols. Companies and individuals voluntarily buy carbon credits to offset their emissions, often to enhance their corporate image. Consumers in affluent countries are increasingly aware of climate change and expect companies to act against global warming. Consequently, many companies have pledged to neutralize their carbon footprints.
Ordinary individuals can participate in this market through numerous digital platforms offering personal emissions calculators. These platforms calculate a user’s carbon footprint and provide services to sell and cancel the necessary credits to offset it, effectively creating a donation system for environmental or clean energy projects. Users contribute financially to these projects and gain the satisfaction of helping reduce global GHG emissions.
