When Did Carbon Credit Exchanges Start?
Carbon Credit Exchanges Start
Carbon credit exchanges are platforms that allow individuals and companies to buy or sell credits that have been created through verified climate action projects. These projects, which can include everything from reforestation to energy efficiency, reduce, avoid, or destroy greenhouse gas emissions. The credits are then sold to individuals or businesses that want to offset their own carbon footprint, which helps them achieve their environmental goals while also making them money. The credits are most often created through agricultural or forestry practices, although they can be produced through any project that reduces, avoids or destroys greenhouse gases. The middlemen, if any exist, typically make their money through fees and a percentage of the total credits sold. In some cases, the project creators themselves may also be the buyers, which can help them reach their goals.
Some carbon credits are used in a compliance market, in which a government sets a limit on the amount of emissions that can be released. The cap is reduced over time and companies must either cut their emissions or buy credits from other companies that are producing less than the limit. This system creates a monetary incentive for companies to find ways to reduce their own carbon footprint, but it has its critics.
When Did Carbon Credit Exchanges Start?
Other carbon credits are used in a voluntary market, in which businesses can buy them to offset their own emissions. The carbon market can be global, as with the new international aviation program that starts this year called CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation), or limited to specific regions. It can be run by individual countries or through a private company, such as Apple, that has bought 1.3 million tons of carbon credit exchange in 2021.
These markets are driven by standards, which are set by respected organizations that verify the projects that generate the credits. A standard, for example, may require a reforestation project to use a certain accounting methodology when creating the credits. That allows buyers to trust that the credits they are buying will actually be created, and the sellers will know that they have something of value to sell.
Many of the standards are created by nonprofit groups, such as Verra, founded in 2007 by environmental and business leaders to improve the quality of the credits that are traded on voluntary markets. The group has developed the most widely used set of standards for verifying carbon credits, which includes using accounting methodologies designed to match the project type, independent auditing and a registry.
As the number of carbon credits grows, more and more exchanges are being launched. Some are geared toward the compliance market, while others are created for the burgeoning voluntary carbon market. These exchanges can be found in cities such as London, Singapore and Sydney, or at online trading platforms such as ACX Clearing. Some of the more innovative exchanges are using distributed ledger technology, such as blockchain, to produce digital tokens for carbon credits that can then be traded on the spot market.
