Can ‘Carbon Market’ Tackle Climate Change?
Launched to reduce the emissions by charging the polluters, carbon markets have long been considered as one of the effective ways to fight climate change. Read the story to understand how does carbon market function and what lies ahead for them.
Crux of the Matter
What Is Carbon Trading?
Also known as carbon emission trading, it is the buying and selling of carbon credits amidst participant nations. These carbon credits permit firms to emit a fixed amount of CO2 in the environment.
Carbon Market Functioning
Carbon Market functions through the principle of cap and trade. Entities regulated under the system are allotted fixed carbon emission units. These units specify the level of CO2 that can be emitted in the environment by each firm.
Entities which emit less than the sanctioned amount can sell their credits in the carbon market. Whereas those who have emitted more than the limit have to buy those credits.
With this, a baseline of CO2 emissions is fixed and hence cannot be exceeded. Moreover, the total emission limits are decreased annually, further motivating entities to shift to cleaner resources.
It enables simple redistribution of emissions, with the aim of reducing pollutants level lost in trading process. Countries would be incentivized to shift operations at a jurisdiction where emissions laws are liberal.
As nations and corporates aim to achieve UN’s aspirational net zero emissions target by 2050, number of acarbon markets are expected to increase worldwide.
The first international carbon market system was established by the Kyoto Protocol. China created the first two environmental market exchanges (CBEEX in Beijing and SEEX in Shanghai).