Carbon Markets: Compliance and Voluntary Markets

[Carbon Markets: Compliance and Voluntary Markets] To fully comprehend the enormous size of the carbon market, it is essential to have a clear understanding of the carbon markets that operate around the world. There are two main types of carbon markets, regulatory (compliance) carbon markets and voluntary carbon markets. Compliance carbon market are normally established by governments or multi-governments to regulate and control the supply of credits. They are normally born out of the laws mandating emissions reductions. The three biggest compliance markets, are the E.U.’s Emissions Trading System (EU ETS), The California Global Warming Solutions Act and the China’s Carbon Compliance Markets . The European Union’s EU Emissions Trading System (EU ETS), launched in 2005, is credited as the first carbon market and claims to be the world’s biggest. It covers all of the EU nations plus Iceland, Liechtenstein, and Norway and regulates emissions involving some 10,000 facilities in the energy and manufacturing sectors, as well as aircraft operators in the region. The total value of major compliance carbon markets is expected to top $800 billion this year, according to Bloomberg NEF. Voluntary carbon (VCM) markets as the name sake suggests are markets that allow companies to trade offsets voluntarily, normally set up by private organizations and normally operate outside of government regulation. VCMs have grown explosively in recent years due to the Paris Climate Accord calling for drastic corporate net zero goals, therefore encouraging participation by corporates from various industries worldwide. Within the VCM more carbon credits can be created through the development of environmental projects. Companies can buy these credits to offset unavoidable emissions and reach their targets. The two major players within the voluntary carbon markets are Xpansiv CBL and ACX (AirCarbon Exchange). In 2021, the market value of the voluntary carbon markets grew to US$2 billion and is expected to grow to between US$10 billion to US$40 billion by 2030. Stay tuned for my next post, where I will be sharing about the organizations that regulate the credits and offset issued by projects and the types of projects that exist that generate offsets. Please feel free to share any thoughts, questions, and opinions. #offset #carbonmarkets #voluntarycarbonmarket