A carbon credit exchange is an economic tool to compensate companies for reducing GHG emissions. This tool is also called a carbon offset. It is an important tool for companies and governments to track their carbon emissions. But before establishing a carbon offset exchange, it is important to ensure that the credits are certified. A carbon offset should be a specific and enforceable mitigation that has taken place.
Challenges in globalizing carbon credit exchange
The market for voluntary carbon credits is growing rapidly, but it faces the typical challenges of a developing initiative. Some of these include a lack of basic regulations, insufficient governance, and distrust among participants. The future of this market depends on its ability to integrate into markets and to build trust between buyers and sellers. EY can help you navigate this market and help you realize the full potential of carbon credits.
As the global warming debate continues, the role of emissions trading in mitigating climate change has become critical. But carbon removal isn’t enough; we need to cut emissions so that CO2 levels don’t reach unsustainable levels. This means that we need alternative approaches. Carbon markets provide an avenue for individual consumers and organizations to sell carbon offsets and CO2 rights, which can help them meet government restrictions.
Benefits of carbon credit exchange
Carbon credits are the product of an effort by companies to reduce emissions and benefit the climate. They can be obtained by planting trees or preventing emissions from other sources. The voluntary market has been growing in recent years due to increased interest in meeting the international climate goals, such as limiting global warming to 1.5 degrees Celsius. One example is a company that pays farmers to convert fields into forests and then sells the credits to companies. In some cases, the farmers claim they planted the trees as part of a government conservation program.
Carbon credits are usually created by forestry or agricultural practices, but virtually any project can generate credits. Companies that want to offset their greenhouse gas emissions can purchase these credits through a middleman or directly from the carbon capturers. Carbon credits are sold in proportion to the volume of emissions a company emits in the past. The middleman earns a profit on each carbon credit sold. There is also a compliance market, which means that the credits are issued by the government rather than by a company.