Carbon Markets Explained

Carbon credits are the single commodity units established as a result of the outcome of the Kyoto Protocol in 1997 for a global carbon market.  Each carbon credit is the equivalent of one ton of CO2 emissions.

The international community came to the decision that the most effective way to reduce global CO2 emissions was to commoditise them.  An international market, running along the same principles as for the trade of any other commodity, would be established, with carbon credits being the unit of exchange.

The concept is that the price of a single carbon credit is decided by market principles.  Essentially, the balance between industries creating CO2 and environmental projects reducing atmospheric levels of CO2, would determine the price.

A high price due to scarcity of carbon credits comparative to industry’s requirements for them to offset their emissions, would provide a financial incentive for private business to invest in projects producing carbon credits.  In order for a project to ‘produce’ carbon credits, it must demonstrated that CO2 levels are actively reduced as a direct result.  For example, capturing methane, or developing renewable energy sources.

Once certified as having met the international criteria, the national governing body will allocate the project with a yearly quota of carbon credits which corresponds to the volume of CO2 emissions the project negates; one carbon credit being the equivalent of 1 ton of emissions.

Carbon Credits FAQ:

Are Carbon Credits a Good Investment?
How to Buy Carbon Credits?
How Much Does a Carbon Credit Cost?
Why Should I Buy Carbon Credits?