Carbon Credits 101
November 17, 2022

Compliance Carbon Credits

Compliance Carbon Credits

Compliance Carbon Credits

Compliance markets are mandatory systems that are set up and regulated by governments in order to cap emissions for specific industries to combat global warming.

Through legal regulations, carbon offsets are distributed by governments.

The carbon offsets in compliance markets are traded within a controlled emissions trading scheme, which incentivises emitting organisations to reduce their carbon footprint.

Currently, the global compliance market is sized at over 250 billion dollars.

However, the effectiveness of carbon markets have been questioned in recent years.

Some critics argue that they may create perverse incentives, and could lead to a "carbon leakage" where businesses relocate to avoid restrictions.

Others argue that they offer one of the most efficient ways to reduce emissions, and should be used in conjunction with other policies such as renewable energy standards.

At its simplest, a carbon market is a system that caps total emissions and allows emitters to buy and sell emission allowances within that cap. The overall goal of this system is to reduce greenhouse gas emissions in a cost-effective manner. These markets can either be voluntary or compliance-based.

Compliance-based carbon markets are typically set up by governments in order to meet international emissions reduction targets, such as those set forth in the Kyoto Protocol. In a compliance-based market, emitters are required to surrender a certain number of emissions allowances in order to cover their emissions. If an emitter does not have enough allowances, they can purchase them from other emitters that have a surplus.

The carbon credit compliance market is a specific type of market that is used to finance projects that reduce greenhouse gas emissions. Carbon credits are generated when businesses or other entities implement projects that reduce these emissions. These carbon credits can then be sold in the market to organisations or individuals that need to offset their emissions.

The market is important because it provides a financial incentive for businesses to reduce their emissions. The credits can be sold for cash, which can then be used to finance emissions-reducing projects. Carbon credit trading also helps to level the playing field between businesses that are emitters of greenhouse gases and those that are not.

Global compliance markets have been growing in recent years, as more and more businesses are looking for ways to offset their emissions. The size of the global carbon credit market was estimated at $250 billion in 2019, and it is expected to continue to grow in the coming years.

The debate over the effectiveness of carbon markets is likely to continue in the years ahead. However, there is no doubt that the compliance market is playing an important role in the fight against climate change.