August 11, 2022

What are European Carbon Credits?

Demystifying the Carbon Market & Tokens. This blog post is part of CC Token’s launch series, specifically focused on educating readers on the fundamentals of the carbon market and cryptocurrency tokens. 

What are European Carbon Credits?

Demystifying the Carbon Market & Tokens

This blog post is part of CC Token’s launch series, specifically focused on educating readers on the fundamentals of the carbon market and cryptocurrency tokens. 

Let’s begin with the basics of the carbon market by answering some key questions: 

What is the Carbon Market?

The Carbon Market is the marketplace where an entity can purchase credits (allowances) to offset its carbon footprint. Two types of carbon markets exist: the compliance market and the voluntary market. 

The compliance market is used by regulated entities (e.g., governments and businesses) to obtain or transfer emissions allowances and the market is regulated by mandatory national, regional, or international carbon reduction regimes, such as the European Union Emissions Trading Scheme (EU ETS). Participants receive an allocated amount of carbon credits

The voluntary market is run by the private sector and encompasses all types of carbon offsetting activities that do not contribute to regulated carbon reduction regimes, ranging from purchasing carbon credits to mitigating or offsetting emissions by financing the reduction of emissions from other sources. 

What is a European Union Allowance? 

A European Union Allowance (EUA) is a tradable financial instrument which exists under the EU ETS, permitting the holder of the EUA to emit one ton of carbon dioxide or the equivalent amount two other greenhouse gases, nitrous oxide, and perfluorocarbons. 

What is a carbon credit?

A carbon credit is a permit or tradeable certificate that represents the right to emit a fixed amount of carbon dioxide or equivalent greenhouse gas. 

What is the benefit of buying carbon credits on the Voluntary Market for a participant?

The voluntary market is open to all, businesses, and individuals, as well organizations participating in the compliance market, providing access to buy carbon credits. Investment in the voluntary market as either as an individual or entity signifies a commitment to climate change and a desire have a positive environmental impact. Particularly for businesses, such proactive actions often resonate with conscious consumers who are eager to associate with businesses that align with their values. 

Pivoting to cryptocurrencies, let’s dive into the mechanics of blockchain that form the foundation of CC Token:

What is a token?

There are two common digital assets in the world of blockchain: cryptocurrencies and tokens. In short, tokens are built on existing blockchains, whilst cryptocurrencies have their own blockchain. Tokens can represent tangible assets such as art and real estate as well as intangible assets such as data storage.

What is Algorand and why is it CC Token’s blockchain of choice? 

CC Token runs on the Algorand blockchain, which was built as a green blockchain with the aim of having a low environmental impact as its core focus from inception. It is the world’s first Pure Proof of Stake (PPoS) blockchain which employs a consensus approach, pivoting away from the early mechanisms which used Proof of Work, which is a slow, expensive and energy inefficient way to build on the blockchain. The PPoS approach solves the blockchain trilemma of security, decentralization and scalability by eliminating the need for traditional mining. In fact, with the PPoS consensus, the protocol selects validators randomly amongst the group of ALGO coin holders. This ultimately provides for less power consumption per transaction. In fact, in April 2021, Algorand announced that its blockchain is entirely carbon neutral. For these reasons, CC Token has chosen Algorand as the blockchain of choice to be built on.