Can Carbon Credits Be Traded?

Carbon Credits Be Traded

One of the most commonly asked questions regarding carbon credits is, “Can carbon credits be traded?” Yes, in fact, there are two major markets where carbon is traded: one that is regulated and mandated by “cap and trade” regulations at the local, state, or national levels; and a voluntary market where businesses, individuals, and other entities purchase carbon credits (of their own accord) to offset their own emissions.

A carbon.credit is a financial instrument representing the reduction or avoidance of one ton of CO2 or equivalent greenhouse gas emissions. It can be purchased and sold through a marketplace that is open to both government and private investors. There are many different types of carbon projects that create carbon credits, but they all share certain characteristics:

The project must have a clear and permanent title to the land where it is located (and/or the rights to extract natural resources). The project must comply with the environmental laws of its jurisdiction. The project must generate additional social and environmental ‘co-benefits’ in line with the UN Sustainable Development Goals, if applicable. The project must produce verified emissions reductions and report them on a regular basis. The project must be registered with an accredited verification body (VBR).

Can Carbon Credits Be Traded?

Once a carbon credit is generated, it can be used to offset any of the following: One of the primary reasons for companies and individuals to buy carbon credits is to comply with governmental and corporate climate change regulations. There are also a number of ambitious companies, organizations, and even individuals who purchase carbon credits in order to reach net zero or even nullify their historical emissions. This is known as greenwashing and while it can be a negative thing, it still shows that there is a recognition that the climate is changing.

In a compliance market, the purchase of carbon offsets is a way to meet an emission reduction requirement. In a voluntary market, there is no obligation to reduce emissions and the purchase of carbon offsets is simply a way for companies to achieve environmental, social, and governance (ESG) objectives. Either way, the purchase of carbon credits can be a significant expense for a business.

These regulated markets are now in operation or being considered in nearly all countries and regions of the world, including the US states of California and Oregon. Other governments like the UK and Canada are developing their own versions of a cap-and-trade program, while other entities, such as a private company, can make a voluntary purchase on the carbon market to offset their own emissions.