Trade Carbon Credits and Offsets
Carbon credits and offsets can be traded in both the voluntary market and the mandatory cap-and-trade system, but there are some differences. Credits (sometimes called allowances) are permits for companies to emit greenhouse gases such as carbon dioxide or equivalent (CO2e). Typically, a single credit allows an organization to emit one tonne of CO2e.
They are issued by governing bodies as part of a “cap-and-trade” system, such as the California Air Resources Board’s cap-and-trade program or the European Union’s Emissions Trading System. These certificates are then sold on a carbon emissions trading system, where they are marketed and auctioned. The trading system is designed to encourage companies to reduce their carbon emissions, which can be accomplished by purchasing allowances or reducing the amount of energy they use.
The trade carbon credits on these markets are usually non-standardized products, with prices determined by many different factors, including the nature of the underlying project, how much they are traded at a time and how long they are delivered. Standardized products are preferred by traders and financial players, especially those looking to buy and hold in anticipation of skyrocketing carbon credit demand.
How to Trade Carbon Credits and Offsets
However, these standardized products can be difficult to understand and use for the purposes of investment. They often come with a lot of information that can be confusing, and they may not provide clear price signals for end buyers.
There are also a number of third-party companies that function as carbon offset intermediaries, which can make it easy to purchase and verify credits. These companies vet and double-check carbon offsets to ensure that they actually do offset carbon, and they may also provide a carbon footprint calculator to help people calculate their own carbon emissions and how many credits they need to avoid those.
While the voluntary market for carbon offsets has been around since the Kyoto Protocol, the new wave of commitments to curb global emissions and consumer pressure have created a strong interest in this market. These initiatives are paving the way for the creation of a more robust and transparent carbon credit marketplace.