Is carbon trading a step change in reducing global emissions?

Team Veye | 13-Feb-2022 carbon trading

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”.


Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website, and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.

veye logo

Grab Your Free Report On 5 ASX Dividend Stocks To Buy In 2024