Carbon Market

A carbon market is a system that allows for the trading of carbon credits or emissions allowances with the aim of reducing greenhouse gas emissions. It operates as a market-based mechanism to incentivize companies, industries, and countries to limit their carbon dioxide (CO2) and other greenhouse gas emissions.

In a carbon market, entities are assigned a certain amount of emissions allowances. If a company emits fewer greenhouse gases than its allocated allowances, it can sell the excess allowances to other entities that exceed their limits. This creates a financial incentive for businesses to reduce their emissions, fostering a more sustainable and low-carbon economy.

There are two main types of carbon markets:

1. Cap-and-Trade: Also known as emissions trading systems, this approach involves setting a cap on the total allowable emissions and allowing companies to buy and sell emissions allowances within that cap.
2. Offset Programs: These programs enable entities to earn carbon credits by investing in projects that reduce or capture emissions. These credits can then be sold or used to offset the buyer’s own emissions.

Carbon markets are a key component of international efforts to combat climate change and are often implemented at both national and regional levels. The concept is integral to creating economic incentives for emission reductions while promoting the transition to a low-carbon future.