Every action an individual performs has an attached carbon footprint. This means whether you cook, use a vehicle, or travel to foreign destinations using air transportation – it emits a certain amount of carbon dioxide, contributing to climate change. The same goes for organizations. However, since the scale of their operations is massive, their actions have become the largest contributors to climate change. While the world governments and other key regulatory bodies are taking steps to minimize their carbon footprint, carbon markets have emerged as one of the promising solutions.
While these markets have their fair share of critics, we at the Tribhuvan College of Environment and Development Sciences, one of the leading environmental science colleges in Delhi NCR, believe they can be game-changing and help lower the effects of climate change. Many nations and even groups of nations have established compliance carbon markets to reduce greenhouse gas emissions by issuing carbon credits that can be purchased or sold. But are these markets really effective and aligned to their pursuit of mitigating climate change? This blog post uncovers all the questions you may have about carbon markets and their role in lowering the negative effects of climate change. So read until the end.
What are Carbon Markets?
Before stepping straight to the role these markets play in controlling climate change, start by understanding what they exactly are. Clear foundational knowledge promotes better understanding, helping you grasp the role with heightened clarity. If you’re new to carbon markets, consider them as a specialized financial system designed to buy and sell carbon credits. These credits are permits that enable the purchaser to emit a certain amount of greenhouse gases, like carbon dioxide.
We at the Tribhuvan College of Environment and Development Sciences firmly believe these markets are a significant part of the emissions trading system that governments use to cap emissions at a particular level. This capping makes it easier to assign limits to organizations so they don’t exceed carbon emissions beyond a certain point.
The world has two types of carbon markets, i.e., compliance and voluntary markets. The former is established by single or multi-country government bodies to regulate carbon credit supply, while the latter is primarily run by private entities that develop carbon projects to generate emission reduction/removal.
According to BloombergNEF, there are approximately 30 compliant carbon markets across the world that are putting a heavy price on pollution. These markets collectively value $850 billion and are way larger than the voluntary carbon market. As these markets continue to broaden their horizon, they will enable a significant portion of global organizations to achieve net zero carbon emission or other ideal limits set according to their capacity or available resources to mitigate climate change.
Role of Carbon Markets in Controlling Climate Change
Carbon markets are based on the cap-and-trade system, wherein governing authorities set a limit on the total greenhouse gas emissions of individual organizations. All participating industries receive allowances or carbon credits, each equalling one metric ton of carbon dioxide. Since companies or other organizations exceeding the assigned limit can buy allowances from efficient reducers, it creates a market incentive for emission reductions. The involved financial gains tempt companies to invest in cleaner and sustainable practices that demand lower carbon emissions.
We at the Tribhuvan College of Environment and Development Sciences view this economic approach as a profitable strategy that transforms emission reduction while facilitating global collaborations and helping nations sustainably achieve climate goals. As carbon markets continue putting a price on carbon emissions, organizations will be more conscious about their actions, driving positive changes toward climate improvement. According to Boston Consulting Group, more business executives are working to achieve net-zero emission targets by buying more offsets in the coming years.
It means more companies will begin funding projects that actively work on reducing carbon emissions through afforestation, methane capture initiatives, solar panel installations, renewable energy utilization, etc., for a balanced emission footprint. While the increased demand for carbon offsets encourages more organizations to invest in emission reduction projects, we at the Tribhuvan College of Environment and Development Sciences believe there are more benefits attached to it. For example, as businesses begin investing more in sustainable projects aimed at reducing carbon emissions, coming up with innovative emission-reduction technologies will be incentivized.
It will also create numerous co-benefits like community development, job creation, biodiversity creation, etc., aimed at achieving sustainable development goals. While carbon offsets are great for achieving short-term goals, every organization must prioritize finding ways to reduce carbon emissions internally.
Conclusion
Carbon markets were established as a collective effort by world governments to lower greenhouse gas emissions. This market model uses a specialized financial market mechanism wherein organizations can buy/sell carbon credits to achieve their emission goals or gain financial advantage by selling the saved credits. While these markets have the potential to control and even mitigate climate change, we at Tribhuvan College of Environment and Development Sciences, one of the most trusted environmental science colleges in Delhi NCR and nearby regions, would like to highlight the fact that the effectiveness of these markets lies largely in the approach of participating members. One can expect good results only if the cap-and-trade systems are designed and implemented properly. Since the devil lies in the details, the market design and economic environment for each implemented system are equally important in determining the carbon markets’ success.