Carbon Markets, a key tool in the fight against Climate Change
Posted: Mon Jan 27, 2025 5:27 am
Noelia Sánchez Professor in the Environment Department of Bureau Veritas Training .
You may have heard of carbon markets before, but do you really know how they work?
Let's start by defining what carbon markets are ; they are trading systems through which governments, companies or individuals can sell or acquire reductions in greenhouse gas emissions .
Broadly speaking, the carbon market, at a global level, can be divided into two types:
Regulated market : one that must comply with regulations, that is, the purchase and sale of emission rights established in the flexibility mechanisms of the Kyoto Protocol .
Voluntary market : includes all carbon offset exchanges linkedin data that are not required by current legislation.
The Kyoto Protocol establishes three flexibility mechanisms: the Joint Implementation (JI) Mechanism, the Clean Development Mechanism (CDM) and Emissions Trading (ET).
These mechanisms were developed with the idea of making it easier for industrialized countries to meet their greenhouse gas emission targets by trading emission rights among themselves and obtaining credits for emission reduction projects outside their borders and supporting the sustainable development of developing countries through clean technologies .
Emissions trading allows governments to buy allowances from countries with surplus Assigned Amount Units (AAUs). These countries include, for example, Russia, Ukraine, Poland, the Czech Republic, and the Baltic states.
The European Emissions Trading Scheme currently has almost 13,000 installations and more than 5,000 air operators, accounting for more than 40% of greenhouse gases in the European Union.
Each installation or air operator receives emission rights based on technical and historical criteria. Each emission right unit, in this case the European Emission Allowance (EUA), has a price (€/t CO 2 ).
There are many variables that affect the price of the emission rights unit and cause it to fluctuate. Some of these variables are the supply and demand of emission rights, the meteorological conditions where extreme weather situations come into play, the wind potential; the price of raw materials and fuels such as coal, gas and oil or other current variables such as the policies of each of the governments, the entry of new countries into the Emissions Trading System, the operation of registries, etc.
You may have heard of carbon markets before, but do you really know how they work?
Let's start by defining what carbon markets are ; they are trading systems through which governments, companies or individuals can sell or acquire reductions in greenhouse gas emissions .
Broadly speaking, the carbon market, at a global level, can be divided into two types:
Regulated market : one that must comply with regulations, that is, the purchase and sale of emission rights established in the flexibility mechanisms of the Kyoto Protocol .
Voluntary market : includes all carbon offset exchanges linkedin data that are not required by current legislation.
The Kyoto Protocol establishes three flexibility mechanisms: the Joint Implementation (JI) Mechanism, the Clean Development Mechanism (CDM) and Emissions Trading (ET).
These mechanisms were developed with the idea of making it easier for industrialized countries to meet their greenhouse gas emission targets by trading emission rights among themselves and obtaining credits for emission reduction projects outside their borders and supporting the sustainable development of developing countries through clean technologies .
Emissions trading allows governments to buy allowances from countries with surplus Assigned Amount Units (AAUs). These countries include, for example, Russia, Ukraine, Poland, the Czech Republic, and the Baltic states.
The European Emissions Trading Scheme currently has almost 13,000 installations and more than 5,000 air operators, accounting for more than 40% of greenhouse gases in the European Union.
Each installation or air operator receives emission rights based on technical and historical criteria. Each emission right unit, in this case the European Emission Allowance (EUA), has a price (€/t CO 2 ).
There are many variables that affect the price of the emission rights unit and cause it to fluctuate. Some of these variables are the supply and demand of emission rights, the meteorological conditions where extreme weather situations come into play, the wind potential; the price of raw materials and fuels such as coal, gas and oil or other current variables such as the policies of each of the governments, the entry of new countries into the Emissions Trading System, the operation of registries, etc.