It’s a hot market, hitting unequaled highs in volume and on target to be valued at $1 billion out of 2021, as indicated by Ecosystem Marketplace, a market distribution run by the environmental finance research nonprofit Forest Trends.
What is a carbon credit? A carbon credit is a kind of permit that represents 1 tonne of carbon dioxide removed from the atmosphere.
In the case of a farmer who plants trees, the landowner receives money; society pays to offset its emissions; and the middleman, if there is one, can make a profit along the way.
The cap is the amount of greenhouse gases a government will allow to be released into the atmosphere and emitters must negotiate to stay within that limit.
So far, around 64 carbon compliance markets are now operational around the world, the World Bank reported in May.
But it is difficult to agree on a common timetable, a common price, a common measure and transparency, said Alok Sharma, president of this year’s United Nations Climate Change Conference, also known as COP26.
The rapid acceleration of the voluntary market during the year is largely driven by recent corporate net zero targets and the interest in meeting the international climate targets set out in the Paris Agreement to limit global warming to 1.5 degree Celsius compared to pre-industrial levels.
What is repression? Critics of the voluntary market, where a company buys carbon credits from a company outside of a regulated trade, point out that this does not reduce the overall amount of greenhouse gases emitted by buyers.
What regulations or oversight does this market have? The voluntary market operates largely without being controlled by federal or local regulators.
Verra, a Washington, DC-based nonprofit group founded in 2007 by environmental and business leaders to improve quality assurance in voluntary carbon markets, has defined the most widely used standard to validate these credits, called Verified Carbon Standard.