The carbon market

The global markets for carbon credits are growing rapidly, reflecting a joint effort to battle climate change and increasing demand for emission reduction units.

While the economic turmoil in traditional financial markets has influenced prices of carbon credits, climate markets have nonetheless maintained a solid growth rate and represent the fastest growing industry globally.

In 2008 markets have traded US $126 billion, up from US $63 dollars in 2007, and nearly 12 times their value in 2005. A total of 4.8 billion tons of CO2 were traded in 2008, up 61% from the 3 billion tons traded in 2007.

The value of markets is forecasted to grow by 68% per year to $669billion in 2013, and over $3.1 trillion by 2020.

There are two main types of carbon markets:

(1) Compliance markets, which are regulated by mandatory reduction schemes,

(2) Voluntary markets, operating outside international agreements and functioning as outlets for organizations, companies, or individuals to voluntary offset their emissions.

Both markets operate in a similar way to markets for other traded commodities, and involve the buying and selling of carbon units in the form of emission allowances (permits to pollute issued under regulated cap-and-trade schemes) and/or carbon offsets (generated by projects that reduce or avoid emissions).