Recently the Intergovernmental Panel on Climate Change (IPCC) issued a new report card of the progress made by humanity towards slowing the pace of climate change. The bad news is that greenhouse gas (GHG) emissions are increasing across all major sectors across the globe, but at a slower rate. One of the positives is that renewable energy sources are becoming affordable, more affordable than oil, coal and gas.
Even with some improvements, the planet faces a huge problem. Scientists warn that 2 degrees Celsius of warming could be over the limit by the 21st century unless we make massive reductions in greenhouse gas emissions today.
Effective action will require coordinated and adequate investment, recognizing that the cost of inaction are far more costly. Countries in developing countries will require at least 6 trillion dollars in 2030 to fund not only the half of their climate change targets (as stated within the Nationally Determined Contributions (also known as NDCs).
The most recent IPCC report has found that the world is all falling short of their goals, with financial flows at a rate of three to six times less than the levels required by 2030 . And there are more stark differences in certain regions around the globe.
How do we accelerate and finance the change needed to solve this climate catastrophe? Many countries are considering carbon markets as a part of the solution.
How do carbon markets work?
In a nutshell carbon markets refer to trading platforms where carbon credits can be traded and purchased.
One carbon credit tradable equals one ton of carbon dioxide , or the same of a greenhouse gas that has been reduced by sequestration or avoided.
What kinds of carbon markets exist?
There are two main types market for carbon: voluntary and compliance.
Markets for compliance are developed by any national, regional or international regulatory or policy requirement.
Voluntary carbon markets – both national and international, are the issue purchasing and selling of carbon-based credits on a basis of voluntary.
The current supply of free carbon credits is mostly provided by private firms that create carbon projects, or from governments who create programs that are accredited by carbon standards which result in emission reductions or removals.
The demand comes from private citizens who wish to pay for their carbon footprint, businesses that have sustainability goals for their corporate operations as well as other players who want to exchange credits at a higher cost in order to earn a profit.
For more information head on over to carbon.credit.
Are there any examples?
One kind of compliance market that a lot of people are familiar with are the emissions trading systems (ETS). Based on the “cap-and-trade” principle Regulated businesses – or even countries, in the EU’s ETS and ETS – are issued pollution or emission permits or allowances from government officials (which can be used to reach the maximum amount (or capped) amount). Polluters who exceed their permissible emissions are required to purchase permits from other companies with permits to purchase (i.e. trading).
The European Union launched the world’s first international ETS in 2005. The year before, China launched the world’s largest ETS which is expected to be covering around one-seventh carbon emissions globally resulting from burning of fossil fuels. A number of subnational and national ETS are in operation or in the process of being developed.