Understanding The Carbon Offset Market

There are increasing climate change events occurring all over the globe, and something drastic has happened to our atmosphere. You are sure to know that industries, corporations, and businesses are emitting a high amount of C02 into the atmosphere. The increasing level of CO2 has created an imbalance in the atmosphere. The world is experiencing increased temperatures, cyclones, dry spells, and heavy rainfalls swiping across the nations.

Carbon credits and Carbon offset have become popular ways for corporations and individuals to compensate for carbon emissions. They are contributing money to undertake projects that will reduce the impacts of carbon and greenhouse gases.

Understanding The Carbon Offset Market

Industries and Corporates are owning up to their responsibilities for the greenhouse effects and coming forward to remedy the environmental damage they have caused. One Internationally accepted positive method is Carbon Offset, also called Carbon Offsetting. It reduces carbon and other greenhouse gas emissions and compensates for the damage of emission which has happened somewhere. When you offset one tonne of carbon, you reduce one tonne of carbon dioxide from the atmosphere.

There are two types of carbon offset markets operating internationally, and these are (a) Compliance carbon offset markets (b) Voluntary carbon offset markets.

 

The Compliance Carbon Offset Market

There are regulations and caps in Europe and other countries on industries, corporates, and businesses on carbon dioxide and other greenhouse gas emissions limits into the atmosphere. The measurement of the limit is one tonne of Carbon dioxide is one Carbon credit-equals to one ton of carbon emission.

The carbon credit is thus an emission limit permitted to companies. Though companies and businesses adopt technologies and measures to reduce carbon emission, that is not enough to compensate for the damage they cause.

Governments, trading companies, and other business entities buy carbon offsets from such industries and corporates. For one tonne of carbon dioxide, there has to be one carbon offset. It helps the corporates to fulfill their legal and mandatory obligations towards compensation for environmental regeneration. The corporations can limit carbon emission below the allotted credit limit and sell the surplus credit to other companies. 

 

The Voluntary Carbon Offset Market

Corporations, industries, and businesses often cannot fulfill the carbon emission reduction targets, and they look for agencies to offset their emissions. They purchase carbon offsets voluntarily to offset emissions. There are verified carbon offset suppliers in the market, and they trade with companies that cannot reduce carbon emission within given limits.

The carbon emitters are the customers and represent the demand side of the trade. The Carbon offset suppliers are usually private entities, universities, government, and non-government organisations.  to offload their unfulfilled emission targets.

 

The Participants Of The Voluntary Carbon Market

The voluntary carbon offset market is growing, and the marketplace is also expanding. Carbon finance has become the point of discussion all across the countries in 2021. There are active players in the carbon offset marketplace.

Major oil companies, banking sectors, hedge funds, industries, corporates, private and NGO sectors are part of it. For better understanding, we categorise them into five types of participants in the voluntary carbon marketplace. 

  • The project developers are at the top of the market chain, and they produce Carbon credits. They have the expertise to design project proposals of various sizes and scales. It includes high-volume hydroelectric projects, and at the same time, small-scale activities led by communities. NGOs often expand the scope of these projects to address issues of equity, safe drinking water, livelihoods, and general welfare.
  • The second in the chain is the end buyers, who are companies and private individuals. They are a committed group of entities who come forward to offset carbon and greenhouse gas emissions. The first ones to join this group were Google, Apple, Airlines, Industries, and oil and gas companies. These entities are setting targets to be Carbon Neutral or hit zero emission levels.
  •  Like other commodity markets, a carbon offset market is also a place for trade, and demand and supply are the guiding principles there, too. Retail traders buy large-scale carbon credits from the suppliers and sell them to end-buyers with a profit margin.
  • Brokering also takes place in Carbon trading as there are brokers who go in between the retailers and the end buyers with their commission.
  •  There is a set of unique players in a carbon market, and they are also called standards. They are certifying entities-like NGOs and independent bodies, who work to ensure the implementation of projects as per the set environmental standards. They calculate how a particular environment promotion and regeneration project produces Carbon credit by reducing carbon emissions.

Why Is The Carbon Offset Market Important?

Today as the world reels under the weight of the carbon emission and climate crisis, carbon offset trading has gained priority. International and national protocols promote it as the way forward to check climate change and its destructive effects, which we witness today. A critical analysis would show that the voluntary offset market is more innovative with promising results than the compliance market.

Let us check some of the points here:

  1. The voluntary offset market promotes innovation and experiments. It is independent of government limits and scales and allows freedom to experiment with pilots and prototypes on climate solutions.
  2. It takes the mandate of the compliance market beyond its limits without contradicting it. The voluntary efforts happen on the ground with the people and local governments. Thus, it gets wider reach, involvement, and local ownership.
  3. It ensures corporate commitment and communities’ goodwill. Industries and businesses are coming forward to implement CSR activities in the peripheries and beyond to compensate for carbon emissions. Their work is benefitting the local communities and winning their goodwill.
  4. It is an effort to address inequity at the national and international levels. Underdeveloped and poorer countries are selling their offsets to the carbon-emitting and industrialised nations. They are adding to climate protection and generating revenue. 
  5. Private groups, NGOs, and entrepreneurs are promoting greener alternatives like renewable energies, reforestation, and environmental protection methods with the support and involvement of local communities.    

Final Thoughts

There are international treaties and national regulations for curbing carbon emissions and saving the earth from its devastating consequences. The carbon offset market is a critical step to reduce the carbon footprint for rejuvenating the climate to its desired levels. The involvement of private businesses, NGOs, and local communities makes it a grounded effort and ensures success.

About Deny Smith

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