Carbon Trading Solutions
About the Carbon Emissions Trading Landscape
Carbon Trading, also known as Carbon Emissions Trading, is a market-based approach to slowing global warming referring to the process of buying and selling permits and credits which allow holders to emit carbon dioxide while meeting compliance requirements under cap-and-trade systems, or to offset global greenhouse gas emissions in voluntary markets. Supply and demand set the commodity price on a carbon credit, carbon offset, or renewable energy certificate in various carbon markets worldwide, where one carbon credit or offset is equivalent to one tonne of carbon dioxide equivalents (CO2e).
Operating jointly out of Targray’s North America and Europe trading desks, our Environmental Commodities team works together with partners to implement effective carbon trading strategies, ensuring dollars invested will have the greatest possible impact on the climate and local communities. Get in touch with our experts to become a trading partner, or to learn more about our tailor-made emissions reduction solutions.
Carbon Trading Markets
The carbon marketplace has two distinct markets, compliance, and voluntary markets. Compliance carbon markets are regulated by governments under cap-and-trade emissions trading schemes while voluntary carbon markets (VCM) allow entities to purchase offset credits at will for various environmental goals and social benefits.
In Compliance Markets, Emission Trading Systems, also referred to as Emission Trading Schemes, Cap-and-trade regulations are mandated by regional governments which set a cap (limit) on emissions that regulated entities may produce.
Carbon credits may be purchased for companies to comply with regulations and excess offset credits may be sold in the event of a surplus.
In Voluntary Carbon Markets, carbon offsets are created by independent bodies who certify emissions reduction projects against transparent, well-established standards called offset protocols.
Carbon offset projects fall under two categories: Avoidance and Reduction Projects (such as renewable energy i.e. solar, wind, methane capture, etc.) and Removal and Sequestration Projects (such as reforesttion and direct carbon capture). Both project types may involve nature-based solutions, like saving a forest from deforestation, or technology-based solutions, like capturing carbon via DAC, for example.
Source: Sylvera – The Sustainable Leader’s Guide
Carbon credits and offsets are terms often used interchangeably yet vary slightly in their definitions, as carbon offsets refer to the removal of carbon dioxide or other greenhouse gas (GHG) emissions from the atmosphere, while carbon credits refer to an avoidance or reduction in greenhouse gases released into the atmosphere.
Carbon credits, also known as carbon allowances, are issued by governmental bodies who limit the amount of CO2 or equivalent GHG emissions an entity may emit by imposing a cap, and allocating a certain quantity of credits to entities covered in a regulated jurisdiction or policy regime. Each carbon credit distributed permits the production of one tonne of CO2 and companies must comply with the regulatory limit to reduce their carbon footprint or face penalties. This can be achieved by reducing emissions through renewable energy or energy efficiency improvement initiatives, or carbon credits may be purchased from other organizations who emit less than the legal limit and sell their excess credits, which are generally traded on compliance markets under various emissions trading systems (ETS). Emitters may also choose to bank unused credits to use the allowances in future years.
A carbon offset is produced when CO2 emissions are removed from the atmosphere. Carbon offset sequestration, storage and reduction projects include land use and reforestation, carbon and methane capture and sequestration/storage projects, and carbon market mechanisms that turn emissions into commodities. CO2 emitters may purchase carbon offsets which are generally traded in the voluntary market but can also be found in compliance markets.
Renewable Energy Certificates
A Renewable Energy Certificate (REC), also known as a Renewable Energy Credit, is a non-tangible commodity which certifies that a renewable energy source generated one megawatt-hour (MWh) of electricity and delivered it to the electricity grid system. RECs may be traded on voluntary and compliance markets, and once they have been sold cannot be purchased again. All REC exchanges are tracked and recorded with unique identifiers indicating where and when they were generated, and the type of renewable source they came from. Purchasing RECs helps entities reduce their carbon footprint and environmental impact while sending a demand signal that supports the renewable energy market.
Verra is a global leader helping tackle the world’s environmental and social challenges by developing and managing standards that help the private sector, countries, and civil society achieve ambitious sustainable development and climate action goals. The standards and programs Verra develops and manages are globally applicable and advance action across a wide range of sectors and activities. Programs undergo extensive stakeholder consultation and expert review, and draw from four key components: standard, independent assessment, accounting methodologies, and registry.
The Gold Standard (GS) is a voluntary carbon offset program focused on progressing the United Nation’s Sustainable Development Goals and ensuring that project’s benefit their communities. It can be applied to voluntary offset and Clean Development Mechanism (CDM) projects. The GS CDM was launched in 2003 after a two-year consultation with stakeholders, governments, non-governmental organizations, and private sector specialists from over 40 countries. The GS for voluntary offset projects was launched in 2006. The GS project registry – containing all projects implemented through the standard was launched in 2018.
The American Carbon Registry (ACR), a nonprofit enterprise of Winrock International, was founded in 1996 as the first private voluntary greenhouse gas registry in the world.
Winrock operates ACR to create confidence in the environmental and scientific integrity of carbon offsets in order to accelerate transformational emission reduction actions.
The Climate Action Reserve (CAR) is an offset registry for global carbon markets.
CAR establishes high quality standards for carbon offset projects, oversees independent third-party verification bodies, issues carbon credits generated from such projects and tracks the transaction of credits over time in a transparent, publicly-accessible system.
The International Emissions Trading Association (IETA) is a non-profit association with more than 250 members who are active stakeholders in the international carbon and emissions markets. The organization was created in 1999 to establish a global framework for greenhouse gas emission reductions trading.
The Low Carbon Fuels Coalition (LCFC) is a technology neutral trade association dedicated to the support and expansion of market-based low carbon fuel policies. The organization supports market-based low carbon fuel policies that reduce carbon pollution while creating jobs, improving air quality, harnessing waste streams, driving innovation, and stimulating agriculture.
CBL has established the first of its kind Standard Instruments Program (SIP) to build on market infrastructure to accompany and govern the launch of spot contracts for the settlement and physical delivery of environmental commodities across existing registries that can be determined as meeting certain defined, standardized criteria for market quality and performance.
Carbon credits are created by governments capping the amount of CO2 an entity may emit, and allocating a quantity of credits to entities covered in a regulated jurisdiction or policy regime.
Global carbon markets are broken down into two major market types; voluntary carbon markets (also known as VCMs) and compliance carbon markets, which vary by jurisdiction.
A carbon price typically appears as a carbon tax or in emissions trading, with the main policy instrument being an Emissions Trading System (ETS), also known as Cap-and-Trade (CAT) program.
A carbon offset is a transferrable credit certified by governments or certifying bodies to represent an emission reduction of one metric tonne of CO2, or an equivalent amount of other GHGs.