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Sustainable Business

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.

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.