🏭How are carbon credits and offsets created?

Carbon credits are issued by national or international governmental organizations. We’ve already mentioned the Kyoto and Paris agreements which created the first international carbon markets.

The number of credits issued each year is typically based on emissions targets. Credits are frequently issued under what’s known as a “cap-and-trade” program. Regulators set a limit on carbon emissions – the cap. That cap slowly decreases over time, making it harder and harder for businesses to stay within that cap.

Few climate exchanges provide help in the discovery of spot prices based on demand and supply.

There is a derivative market based on these spot prices. Currently, there are five exchanges trading in carbon credits:

• European Climate Exchange

• NASDAQ OMX Commodities Europe

• PowerNext

• Commodity Exchange Bratislava

• European Energy Exchange

Few companies are launching digital carbon trading platforms where tokenized carbon credits can be traded.

Carbon offsets work slightly differently.

Organizations with operations that reduce the amount of carbon already in the atmosphere, say by planting more trees or investing in renewable energy, have the ability to issue carbon offsets. The purchase of these offsets is voluntary, which is why carbon offsets form what’s known as the “Voluntary Carbon Market”. However, by buying these carbon offsets, companies can measurably decrease the amount of CO2e they emit even further.