Carbon Markets
Broadly speaking, carbon pricing gives emission generating organizations a choice between reducing their carbon emissions or paying for them. There are broadly two types of carbon markets: compliance and voluntary.
- Compliance markets: Created as a result of any national, regional and/or international policy or regulatory requirement.
- Voluntary carbon markets: National and international – refers to the issuance, buying and selling of carbon credits, on a voluntary basis.
The two common initiatives used to create carbon markets are carbon taxes and emissions trading systems (ETS):
- Carbon tax: This tax or levy is directly applied to the production of carbon emissions or fuels that release greenhouse gases. This makes products or services that release substantial carbon more expensive than greener alternatives (or reducing emissions).
- Emissions Trading Scheme (ETS): Also called the cap-and-trade system, ETS puts a cap on the total level of greenhouse gases a licensed industry can emit. Companies with low emissions can sell their unused emission allowance with larger emitters that have exceeded the cap.
Note: Carbon credits lack widely adopted standards or marketplaces. This makes it difficult to find, understand, and compare carbon credit projects. The resources listed within this page provide a basis for understanding Carbon Markets.
For a map of 70 active carbon pricing initiatives around the world as seen in the 2022 World Bank Report, check out Visual Capitalist.
- World Bank Carbon Pricing DashboardSummary map of regional, national and subnational carbon pricing initiatives.
- OECD Series on Carbon Pricing and Energy TaxationThis book series tracks and analyses explicit carbon prices, energy taxes and subsidies.
- Climate Action Data TrustOffers transparency and accountability in tracking carbon registries.
ETS Dashboards
A carbon offset credit is a transferrable instrument certified by governments or independent certification bodies to represent an emission reduction of one metric tonne of CO2, or an equivalent amount of other GHGs (see Text Box, below). The purchaser of an offset credit can “retire” it to claim the underlying reduction towards their own GHG reduction goals.
For more on carbon offset programs, consult the Carbon Offset Guide.
- Clean Development MechanismThe Clean Development Mechanism (CDM), defined in Article 12 of the Protocol, allows a country with an emission-reduction or emission-limitation commitment under the Kyoto Protocol (Annex B Party) to implement an emission-reduction project in developing countries. Such projects can earn saleable certified emission reduction (CER) credits, each equivalent to one tonne of CO2, which can be counted towards meeting Kyoto targets. Also consult the CDM Registry.
- Regional Greenhouse Gas InitiativeCooperative, market-based effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector. It represents the first cap-and-invest regional initiative implemented in the United States.
- California Compliance Offset ProgramThe California Air Resources Board issues ARB Offset Credits to qualifying projects that reduce or sequester greenhouse gases (GHG) pursuant to six Board-approved Compliance Offset Protocols. Compliance offsets are tradable credits that represent verified GHG emissions reductions or removal enhancements from sources not subject to a compliance obligation in the Cap-and-Trade Program.
- American Carbon RegistryFounded in 1996 as the first private voluntary GHG registry in the world.
- Climate Action ReserveAn offset registry for voluntary carbon markets in the U.S. and now internationally.
- The Gold StandardDeveloped under the leadership of the World Wildlife Fund (WWF), HELIO International, and SouthSouthNorth, with a focus on offset projects that provide lasting social, economic, and environmental benefits.
- Verra Verified Carbon StandardWorld’s most widely used greenhouse gas (GHG) crediting program. See also, the Verra Registry
- Climate Change 2023: Summary for PolicymakersA report of the Intergovernmental Panel on Climate Change.
- UNDP High-Integrity Carbon Markets Initiative 2023A document which seeks to define carbon markets and, in particular, "high-integrity" carbon markets.
For following the race to net zero and climate neutrality, these organizations provide insights publications of relevance: