Carbon markets are important channels in helping to drive emissions from the economy by effectively putting a price on pollution.
In a mandatory emissions trading system, set up by a government or governments, major polluters, such as factories and power plants, are required every year to match their annual emissions with 'allowances' which can be bought and sold like any other commodity.
Power generation and heavy industry sectors including steel, cement and chemicals account for nearly two-thirds of global CO2 emissions.
The carbon market relates to the production and buying and selling of carbon credit units. These units (or credits) are generated primarily from land restoration projects that re-establish native vegetation in the landscape and in turn remove carbon dioxide from the atmosphere.
Xpansiv, the global market for ESG-inclusive commodities, announced that its CBL platform, “the world’s largest exchange for trading carbon credits, renewable energy certificates, water entitlements, and digital fuels”, saw its carbon credit volumes soar 292% year-on-year.
Total carbon-offset volume transacted exceeded 121.5M mtCO2e (tons) in 2021. CBL growth was fuelled by a surge in voluntary carbon market activity driven by corporate net-zero and ESG programs
Since there is a limit to the number of allowances in a market so super-polluters need to pay a price to buy enough allowances to cover their emissions and organisations which reduce their emissions can make money by selling their allowances. In turn, this creates a ‘pro-market’ incentive for polluters to take climate action.
Globally, Decarbonisation is gaining importance. More and more companies are working to get ahead of the net-zero carbon goals in line with the Paris Climate Agreements. In Glasgow, delegates discussed ways to establish an international carbon market which can mitigate global emissions.
The proposed Australian Carbon Exchange, to be developed over a three-year project timeline, will make a significant contribution toward the government’s aim in “Streamlining private sector action to support emissions reductions”.
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