Carbon Credits – 3 Market Fast Facts
Whether you are a Toitū carbonzero programme member, use carbon credits to offset a specific project or just interested in carbon credits, we’ve rounded up the fast facts you need to understand the market.
What is the carbon credit market?
It helps to think about the carbon credit market as just like a financial market. Basically, it’s a broad term describing the buying and selling of carbon credits (just like you can buy and sell stocks, bonds or securities in a financial market). Suppliers develop the projects which produce carbon credits through storing, avoiding or reducing greenhouse gas emissions (we’ll call them carbon for short). Buyers want to offset their own impact by purchasing the credits which in turn help finance the projects. Credits are typically traded either via a trading exchange (where prices can be viewed and buyers can purchase their required number); direct seller to buyer purchase; or via a broker. Once a credit is ‘used’ to offset a unit of carbon emitted, then it is officially retired (sometimes referred to as cancelled) on a registry to ensure that it can’t go back into circulation and be re-sold.
What’s the difference between Compliance and Voluntary participation in markets?
Some governments, companies and other organisations are legally bound to restrict their emissions. They are participants in compliance markets. There are a number of examples:
- International level: Annex 1 Parties under the Kyoto Protocol (i.e. close to 200 countries are parties to the commitment)
- National level: NZ’s Emissions Trading Scheme (NZETS)
- State level: California cap-and-trade program.
Participants in compliance schemes are allocated a certain number of carbon units or ‘permits to pollute’. If they emit more than their allocation, they must purchase extra units from participants that have emitted less than their allocation, and are willing to sell their leftover units. Alternatively, they can buy carbon credits that are approved for use within the scheme. N.B. the compliance markets related to countries commitments under the Paris COP21 agreement are still to be confirmed.
Organisations that voluntarily participate in carbon markets are not legally bound but choose to purchase carbon credits for other reasons. They may be wanting to future proof their business, make carbon neutral claims, demonstrate corporate responsibility, or simply want to play their part in helping to reduce climate change impacts.
What’s happening at the moment with carbon credit availability and price?
The demand for carbon credits is rising and, as a consequence, prices will rise too. This is great news for the atmosphere, but means the market supply of credits has become increasingly variable. Price and availability are changing rapidly, and it is likely that this will continue for some time, particularly as the world waits on concrete outcomes from the Paris Agreement.
We work with Toitū carbonzero programme members to find carbon credits that suit their needs, and ensure they are making a meaningful difference to the atmosphere
Need more information?
- Have a read through our Carbon Credits 101 article.
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- Get in touch with our expert team to know more about carbon credits and how your organisation can take positive steps towards a more sustainable future.