Carbon market fights climate change

The world's nations face a major challenge in addressing climate change, as they race to reduce greenhouse gas emissions that threaten our planet. In this context, the world's interest in carbon markets has grown as an effective means of monitoring and reducing greenhouse gas emissions.

Carbon market trade is defined as the use of markets to sell and buy credits that allow companies to issue specific amounts of carbon dioxide.

There are many important terms that fall under this definition, such as carbon tax, that indicate the fixed amount that exporters must pay for their carbon emissions.

On the other hand, carbon credits are defined as negotiable instruments that allow companies and other entities to offset their emissions by financing projects that contribute to reducing or removing carbon dioxide from the atmosphere, and if credits are used to reduce, isolate or avoid emissions, they are considered non-negotiable offsets.

Governments allow entities to issue a specific amount of carbon via emission allowances, known as carbon credits, and give their owners the right to emit one tonne of carbon dioxide, which can be traded among companies that adhere to environmental regulations, thereby enhancing the effectiveness of the emission reduction system

It should be noted that the concept of carbon trading first emerged with the Kyoto Protocol, the United Nations Climate Change Mitigation Treaty, which entered into force in 2005; The idea was to incentivize each country to reduce its carbon emissions, as opposed to the larger and wealthier countries supporting the poorer countries' efforts by buying their "stocks"; Its right to carbon emissions

Carbon markets are essentially commercial systems through which carbon stocks are sold and purchased; where companies or individuals can use carbon markets to offset GHG emissions by purchasing carbon stocks from entities that remove or reduce GHG emissions, notably that there is no fixed carbon price worldwide; Prices fluctuate by country and by market supply and demand conditions.

Carbon trade relies on cap and trade regulations, which have already succeeded in reducing sulphur pollution during the 1990s; In turn, it has developed market-based incentives to reduce pollution.

There are two types of carbon markets; Compliance markets, voluntary markets; While compliance markets are established in response to any policy or regulatory requirements; National, regional or international, voluntary carbon markets -- national and international -- mean the issuance, purchase and sale of carbon stocks, on a voluntary basis; On the one hand, the supply of voluntary carbon stocks comes mostly from private entities developing carbon projects, or by Governments developing carbon standard-based programmes, which in turn aim to reduce or eliminate emissions

On the other hand, demand often comes from individuals who want to compensate for their carbon footprints, companies that pursue sustainability goals, and other actors that aim to trade carbon credits at a higher price for profit. Thus, carbon emission rights can be sold in different markets; Some are international, some at the State level, some at the local level

In recent years, global trends in support of carbon trade have emerged, with industry projections showing that demand for carbon stocks for offsetting will grow significantly over the coming years.

Revenues from carbon taxes and emissions trading services rose by more than 10% in 2022, reaching nearly $95 billion globally

According to an analysis by the International Emissions Trade Association and the University of Maryland, implementing nationally determined contributions or national climate action plans collaboratively through international carbon trade, rather than an individual approach, could save governments more than $300 billion a year by 2030.

Some estimates also suggest that reliance on carbon markets could reduce the total cost of implementing nationally determined contributions - Contributions from climate pledges and action plans developed by countries to reduce global warming to 1.5 degrees Celsius - by more than half, equivalent to about $250 billion a year by 2030, or alternatively, could contribute to the removal of 50% more emissions by the same year at no additional cost