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The carbon market and its role in the reduction of CO2 emissions

In line with the Paris Agreement, the European Union aims to be climate-neutral by 2050. That means that in the next thirty years we must strive not only to reduce our carbon footprint, but residual emissions need to be compensated by some industries in order to reach net zero emissions.

Carbon dioxide is vital to a range of sectors, so it is reasonable to say that reducing all emissions to zero is far from realistic, although the needs and the greenhouse gas emissions released by some industries can be counterbalanced by some others which could in turn use clean energy. As a result, for the same amount of energy produced, the levels of CO2 emitted into the atmosphere will go to zero. Alternatively, the sectors generating a larger share of greenhouse gas emissions can issue green bonds to finance environmental and sustainable projects; in other words, positive emissions- the greenhouse gasses released in the atmosphere- and the negative emissions need to be balanced.

It goes without saying that emissions must be cut significantly and that some carbon removal will still be necessary. There are a few CDR techniques (Carbon Dioxide Removal): from nature-based methods such as reforestation, agricultural practices that sequester carbon in soils, to technological alternatives such as bioenergy with carbon capture and storage, new fish farming techniques, and seaweed farming- marine algae are an essential part of a healthy aquatic ecosystem; furthermore, they absorb CO2, so they have a large potential to reduce carbon from the atmosphere by converting it to biomass.

The balance between greenhouse gas emissions and removals is regulated by the so-called carbon market, which exists within some countries and regions.

In 2005, the European Union introduced the first Cap and Trade program: a set number of permits are issued to given industries across EU that comprise a cap on allowed carbon dioxide emissions. Cap and Trade systems have accurate emissions monitoring; the cap is split into allowances, which companies can trade with one another as needed. This is the first step of building decarbonization: the cap decreases every year, thus encouraging companies’ transition to renewable energy. Moreover, the funds generated from the sale of allowances are invested in environmentally related projects. This regulatory system suits particularly big industries, which have the knowhow and ability to quickly adapt to change, as well as internal network setting necessary for a market to function.

An environmental efficient, yet less developed economic instrument for companies is the voluntary carbon market; the VCM is a decentralized market where businesses and industries buy and sell carbon credits at the price determined by the forces of supply and demand. Carbon credits usually are issued by NGOs. For instance, Gold Standard is a voluntary carbon offset program launched by some NGOs like World Wide Fund for Nature (WWF). Gold Standard not only issues carbon credits, but it also ensures that projects make measurable contributions to sustainable development. These projects are related to the UN Sustainable Development Goals, they are initiatives supported by NGOs, so they aim to meet the needs of smaller businesses as well which lack the financing to be sustainable.

The carbon market is regarded as a complex system and bureaucratic tool to encourage industrial transition towards deep decarbonization and clean energy. Generally driven by private institutions, carbon market is an effective tool for monitoring and reducing greenhouse gas emissions and it represents a fundamental economic reality for both small-scale and large-scale industries.

References:

Voluntary carbon markets: how they work, how they're priced and who's involved | S&P Global Commodity Insights

Translated by Iuliana Cindrea


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  • L'Autore

    Nadia Dalla Gasperina

    Nadia Dalla Gasperina è studentessa di scienze politiche all’Università di Bologna, dove si occupa di Balcani. Il suo interesse per la diplomazia, le relazioni internazionali, e l’azione civile l’hanno portata a collaborare con diverse associazioni e organizzazioni in Italia e all’estero. Scrive ora nella sezione Ambiente e Sviluppo di MI Post.

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Sections Environment & Development


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mercato del carbonio decarbonizzazione sviluppo sostenibile SDGs innovazione industria neutralità climatica Zero emissioni emissioni gas serra

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