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Carbon Credits

What are Carbon Credits?

Carbon credits are tradable permits that represent the reduction of one metric ton of carbon dioxide emissions. They incentivize organizations to lower their greenhouse gas emissions and invest in sustainable practices.

Compliance vs. Voluntary Markets

The compliance market is regulated by governments and requires entities to adhere to emission reduction mandates. The voluntary market allows organizations to purchase carbon credits to offset their emissions beyond regulatory requirements.

Compliance carbon credit registries

European Union Emissions Trading System (EU ETS):

The EU ETS is the largest and most established carbon market, covering sectors like power generation, industry, and aviation within the 27 EU member states plus Iceland, Liechtenstein, and Norway. It has been operational since 2005 and plays a significant role in the global carbon market (Carbon Credits).

California Cap-and-Trade Program

This program is managed by the California Air Resources Board (CARB) and covers sectors such as electricity generation, industrial processes, and fuel distribution. It includes specific offset protocols for projects like livestock, mine methane capture, and ozone-depleting substances (California Air Resources Board).

Chinese National ETS

Launched in 2021, the Chinese National ETS is the world's largest carbon market by volume. It initially focuses on the power sector but aims to expand to other industries. The system is built upon successful regional pilots that started between 2013 and 2016 (Carbon Credits).

CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation):

Managed by the International Civil Aviation Organization (ICAO), CORSIA requires airlines to offset emissions that exceed a baseline level through approved carbon credits. The scheme includes several approved standards like the American Carbon Registry, Climate Action Reserve, and Verra's VCS program (Carbon Credits).

EU Emissions Trading System (EU ETS)

The EU Emissions Trading System (EU ETS) is the cornerstone of the European Union’s strategy to combat climate change and reduce greenhouse gas emissions cost-effectively. Established in 2005, the EU ETS is the world’s first major carbon market and remains the largest one, covering more than 11,000 power stations and industrial plants in 30 countries, as well as airlines operating between these countries. The EU ETS operates on a cap-and-trade principle, which sets a cap on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. The cap is reduced over time, so total emissions fall. Within the cap, companies receive or buy emission allowances which they can trade with one another as needed. The limit on the total number of allowances available ensures that they have a value.

Key Features of the EU ETS:

  • Cap-and-Trade System :- A declining cap on emissions ensures overall reductions, while trading allows for flexibility and cost-efficiency.
  • Sector Coverage: Includes energy-intensive sectors such as power generation, manufacturing, and intra-European commercial aviation
  • Market Stability: Mechanisms such as the Market Stability Reserve (MSR) help address the surplus of allowances and improve the system's resilience to shocks
  • Innovation Support: Revenues generated from the auctioning of allowances support investments in renewable energy, energy efficiency, and other low-carbon technologies through funds like the Innovation Fund and the Modernisation Fund

The EU ETS is a crucial tool for the EU to meet its climate targets under the Paris Agreement, aiming to cut greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and to become climate-neutral by 2050. By putting a price on carbon, the EU ETS incentivizes businesses to innovate and invest in cleaner technologies, fostering a transition to a sustainable and low-carbon economy.

For more detailed information on how the EU ETS operates and its role in the EU’s climate policy, visit the EU Emissions Trading System (EU ETS) webpage

How Carbon Credits Work

Carbon credits are generated by projects that reduce or remove greenhouse gas emissions. These credits can be traded, sold, or retired to meet compliance obligations or achieve sustainability goals.

Benefits of Carbon Credits

  • Mitigate climate change by reducing greenhouse gas emissions
  • Enhance corporate sustainability profiles.
  • Generate additional revenue for emission reduction projects.

Key Features of the EU ETS:

  • Cap-and-Trade System: A declining cap on emissions ensures overall reductions, while trading allows for flexibility and cost-efficiency.
  • Sector Coverage: Includes energy-intensive sectors such as power generation, manufacturing, and intra-European commercial aviation.
  • Market Stability: Mechanisms such as the Market Stability Reserve (MSR) help address the surplus of allowances and improve the system’s resilience to shocks.
  • Innovation Support: Revenues generated from the auctioning of allowances support investments in renewable energy, energy efficiency, and other low-carbon technologies through funds like the Innovation Fund and the Modernisation Fund.
The EU ETS is a crucial tool for the EU to meet its climate targets under the Paris Agreement, aiming to cut greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels and to become climate-neutral by 2050. By putting a price on carbon, the EU ETS incentivizes businesses to innovate and invest in cleaner technologies, fostering a transition to a sustainable and low-carbon economy. For more detailed information on how the EU ETS operates and its role in the EU’s climate policy, visit the EU Emissions Trading System (EU ETS) webpage.

How Carbon Credits Work

Carbon credits are generated by projects that reduce or remove greenhouse gas emissions. These credits can be traded, sold, or retired to meet compliance obligations or achieve sustainability goals.

Benefits of Carbon Credits

  • Mitigate climate change by reducing greenhouse gas emissions.
  • Enhance corporate sustainability profiles.
  • Generate additional revenue for emission reduction projects.

Carbon Credit Projects

Project Types: Includes renewable energy, reforestation, energy efficiency, and waste management projects.
Success Stories: Highlighting impactful projects that have successfully reduced emissions and benefited communities.