Day 4: “Carbon Markets”

From the Insuring The Transition “sustainability insights” advent calendar

Title: Deciphering Sustainable Jargon: Key Terms Redefined for Insurance Leaders — DAY 4 📚

Carbon markets by Ant Ireland

#Carboncredits, #carbonoffsets, #carbon markets… what does it all mean?

Carbon markets are financial mechanisms designed to tackle climate change by reducing greenhouse gas emissions (#GHG). They do this by putting a price on carbon emissions, incentivizing businesses to reduce their emissions.

The market operates by capping the total amount of emissions allowed within a specific jurisdiction or industry, and gradually reducing this cap over time. Emissions permits can be bought, sold and traded among participants, so companies that emit below their allowance can sell their excess allowance to companies exceeding theirs. However, as the emissions cap lowers over time, the cost of emitting carbon will rise.

There are two main types of carbon markets: compliance and voluntary.

* In compliance markets, governments and regulators mandate organizations to hold enough allowances to cover their emissions in alignment with emission reduction targets. The biggest example is the EU Emissions Trading System, though there are compliance carbon markets in several jurisdictions including the US and China.

* Voluntary markets enable anyone, including…