Carbon Markets 101

The Basics

• A carbon credit is a tradable unit representing the reduction or removal of one tonne of CO2e from the atmosphere 

• There are two key markets:
  • Compliance market - Mandated and controlled by Governments, usually through a cap and trade model (e.g. EU ETS). Only eligible companies in select industries are covered, such as electricity and heat generation, energy-intensive industry including cement and steel, and aviation.
  • Voluntary carbon market (VCM) - Self regulated by independent standard bodies (e.g. Verra and Gold Standard), with non-profit governance bodies providing guidance on target setting (Science Based Targets initiative, SBTi), corporate claims (Voluntary Carbon Market Integrity Initiative, VCMI) and credit integrity (Integrity Council of the Voluntary Carbon Market, ICVCM). The VCM is used by companies to voluntarily reduce net emissions to meet public commitments made in response to shareholder, capital provider, customer and societal pressures.

• Credits are generally categorized by type:

Assessing Quality in the VCM

• The unregulated VCM has struggled to manage integrity and quality, leading to widespread public scrutiny of credit validity and greenwashing concerns
• The Integrity Council (ICVCM) has recently published Core Carbon Principles (CCPs) to set new threshold standards for high-quality carbon credits
• Credits with a CCP label are expected to generate a price premium

VCM Outlook

• The VCM is currently valued at around $2 billion and is expected to grow exponentially by 2030, driven largely by impending corporate climate commitments deadlines.
• Corporates will be forced to purchase carbon credits to offset their residual emissions or otherwise renege on their voluntary climate commitments.

At TransparenC, our visualization platform animates carbon credit projects and their impacts - in an engaging and digestible format - via interactive maps, 3D projections, quality assessments and more to restore trust in carbon markets and drive investment in nature. We work with Project Developers and Corporate Buyers, among others, to drive engagement and maximize return on investment.