A carbon market is a structure organised for trading carbon credits. It aims to reduce global emissions cost-effectively. Carbon credits allow emitting of a given amount of carbon dioxide or other greenhouse gases into the atmosphere at a cost. It is seen as a financial incentive for businesses and governments to reduce their greenhouse gas emissions. The carbon trading system allows for progressive growth in reaching emission reduction targets.
Carbon markets can take different forms. It can be implemented at a local, regional, national, or international level as cap-and-trade systems or carbon taxes. A carbon market aims to provide a market-based solution to address climate change by incentivising the reduction of greenhouse gas emissions. Despite the slow rise in global GHG emissions, renewable energy is getting much cheaper than fossil fuel alternatives. The finance derived from the companies is used to advance greener alternatives. Companies that emit more emissions than their allocated credits can buy from companies with unused credits to incentivise emissions reduction.
Here are some key reasons why the carbon market is essential:
- Carbon market plays a crucial role in keeping greenhouse gas emissions low through incentives. The financial benefits from a carbon tax can be used to fund the development and support of sustainable development initiatives like clean technologies, forest development, low carbon tax, etc.
- Carbon market is essential in ensuring the attainment of net-zero emissions globally.
- It improves air quality and supports forest conservation due to significant emissions reductions.
- It creates opportunities for economic growth and job creation in the clean energy sector.
- The carbon market provides opportunities for international collaboration toward global climate goals.
- It contributes to clean technology development contributing to the low cost of Renewable energy technology and positioning renewable energy as more competitive to fossil fuels.
However, the downsides include the risk of price distortions and volatility with demand and supply in the market and subvert the effectiveness of the market. Carbon markets hold a lot of positive impacts for sustainable development and net zero ambitions. In conclusion, the carbon market remains crucial for reducing greenhouse emissions and addressing climate change.