The carbon credits markets are an integral part of global efforts to combat climate change. The markets were established to support reducing greenhouse gas (GHG) emissions to mitigate the climatic impact of human activities. The carbon credit market is divided into two main categories: regulated and voluntary.
Regulated Markets
Regulated markets were established to respond to the legislation or international protocols that set binding targets to reduce greenhouse gas emissions.
A well-known example is the European Union Emission Trading System (EU ETS), operating within the framework of the EU Emissions Trading Scheme. Companies are assigned an emission limit and can buy or sell emission permits according to their needs.
Other examples include regulated markets established under the Kyoto Protocol or the Paris Agreement, such as the Clean Development Mechanism (CDM) and Joint Implementation (JI).
Voluntary Markets
Voluntary carbon markets operate outside legal obligations or international protocols.
In this case, organizations and companies voluntarily decide to offset their emissions by purchasing carbon dioxide emissions following the calculation of their carbon footprint. It is referred to as the Voluntary Carbon Market (VCM), encompassing various CO2 offset projects, including reforestation, promotion of renewable energy, national energy efficiency, etc.
International governmental and non-governmental organizations have developed standards, control processes, and certification for projects, along with public registries, aiming to ensure traceability of the carbon credit lifecycle and accurate quantification due to their regulation.
Voluntary buyers (companies, local authorities, and individuals) of carbon units hope to achieve a carbon-neutral balance in the coming years.
Market Value
According to Global Market Insight (GMI), the whole market was valued at USD 87.9 billion in 2022 and is set to grow at a CAGR of 14.2% during the period from 2023 to 2032.
Conclusion
Both markets aim to encourage investments in sustainable projects and promote the reduction of greenhouse gases. However,regulated markets are more binding and often tied to legislative objectives, while voluntary markets offer flexibility and voluntary participation.
The market combination can contribute to a more holistic approach to combating climate change worldwide.