Trade Carbon Credits Start

The market for trade carbon credits is relatively new. It was only around 10 years ago that the Kyoto Protocol prompted the first trades in greenhouse gas emissions. But a wave of public and private commitments to curb emissions over recent years has ignited a renewed interest in voluntary carbon markets.

Despite the fact that trade carbon credits finance has only been around for a little over a decade, it’s already growing in size and volume. Its rise is fueled by the increasing pressure on businesses to reduce their emissions and the growing understanding of the need to protect our planet.

But to grow, the voluntary market will need to overcome a number of challenges and improve its overall integrity and transparency. It will also need to build its supply and demand side in order to become more liquid and efficient. The current voluntary carbon market is highly heterogeneous, with a wide variety of projects issuing different types and sub-types of carbon credits. These credits come with various attributes, which can lead to a range of prices for each one.

How Did Trade Carbon Credits Start?

There are a number of factors that affect the price of credits, including the type of underlying project, its size and age, its certification and the certifying standards it follows. As a result, putting a price on carbon credits can be challenging and time-consuming.

An effective way to tackle this problem is for exchanges to create standard products for carbon credits. These products guarantee the basic characteristics of the credits traded under them, such as the type of underlying project, its age and a restricted group of standards.

A standardized product can make it easier for investors and buyers to compare credits, which can help increase confidence in their use of offsets. In addition, it can lower issuance costs for carbon developers and speed up credit issuance, payment and cash flow.

As a result, the global carbon credit market is currently growing at a rate of around 5 percent per year. The number of credits traded in the market is expected to double by 2025. The market is dominated by banks, oil and gas majors and hedge funds, but there are a large number of other sectors that are putting their money behind carbon projects. These include industrial companies, financial institutions, governments and NGOs.

These entities are not only committing to carbon reductions but also looking for ways to fund them. For example, the World Cup governing body FIFA bought credits to help cover its carbon footprint in Brazil. But the project was cancelled when more trees were logged than the credits sold.

Many carbon credits are based on community-based projects that are designed and run by local groups or NGOs. Such projects usually have smaller volumes, but they can meet the UN Sustainable Development Goals and generate additional co-benefits such as improved welfare for the local population or better water quality.

While these projects tend to have a higher price tag, they also offer more GHG offset potential and are generally able to deliver the promised climate benefit. Moreover, they have the added benefit of being easily verified by a third-party verification entity.