Carbon trade/carbon markets

What is the ‘carbon market’?

The ‘carbon market’ describes the domestic and international trade of greenhouse gas emissions, specifically carbon dioxide, as a means to monitor and limit the amount of carbon emitted at the global level.

Trading schemes and carbon credits

Emissions trading schemes come into being when a central regulatory body places a ‘cap’ on the amount of emissions that may be made by emitters. An emitter is usually considered to be a private company, but in some cases, emissions are also traded between nation-states. In the case of carbon emissions, this global regulation was initially and primarily linked to the Kyoto Protocol, although other regulatory bodies have since been established. The standard unit of measurement for carbon emissions is equal to one metric tonne of carbon dioxide. Each of these units represents a ‘permit’, or ‘carbon credit’.

Under these regulations, each ‘emitter’ entity is allowed a certain number of carbon credits, which is limited by the cap. If an entity seeks to increase its emissions beyond this cap, it must first obtain more carbon credits. The carbon market allows it to buy extra carbon credits from another entity that is emitting below its cap, and therefore has credits in surplus. Alternatively, an emitter might gain extra credits by purchasing carbon offsets, which, through a variety of mechanisms, aim to actively reduce the amount of carbon dioxide in the atmosphere.

Pros and cons

Supporters of the carbon market argue that it provides a more flexible way to reduce greenhouse gas emissions across the board, and runs less risk of negatively impacting industrial interests and economic stability. Critics points out that trading schemes allow for industry to continue ‘business-as-usual’, instead of more profound, structural changes that would have a more positive long-term effect for the environment. Carbon trading has also been accused of ‘colonial’ tendencies and contributing to global inequality, by allowing rich, industrialised nations and companies, who can afford to buy carbon credits, to maintain high levels of production and consumption, whilst disadvantaging entities with less capital, and hindering their economic and industrial development.

Learn more

Visit our FAQs page to read more about issues such as carbon offsetting and how forestry plantations are involved.

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A eucalyptus plantation in Uganda.

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