Types of carbon market place
Last updated
Last updated
There’s one more important distinction between carbon credits and carbon offsets:
Carbon credits are generally transacted in the carbon compliance market.
Carbon offsets are generally transacted in the voluntary carbon market.
The global compliance market for carbon credits is massive. According to Refinitiv, the total market size is Eur 760 billion on the compliance markets in 2021.
Mandatory schemes limiting the amount of greenhouse gases that can be emitted have proliferated—and with them, a fragmented carbon compliance market is developing. For example, the European Union has an Emissions Trading System (ETS) that enables companies to buy carbon credits from other companies.
Companies with low emissions can sell their extra allowances to larger emitters in a compliance market.
The voluntary carbon market for offsets is smaller than the compliance market, but is expected to grow much bigger in the coming years. It is open to individuals, companies, and other organizations that want to reduce or eliminate their carbon footprint, but are not necessarily required to by law.
Consumers can purchase offsets for emissions from a specific high-emission activity, such as a long flight, or buy offsets on a regular basis to eliminate their ongoing carbon footprint.
The voluntary carbon market is where many companies like Apple, Stripe, Shell, and British Petroleum are actively seeking to offset their footprint. It is the sector most ripe for growth.
