Trade Carbon Credits
Buying and selling carbon credits allows companies and individuals to offset their greenhouse gas emissions by reducing the amount of carbon dioxide in the atmosphere. This is done by promoting projects that reduce, avoid or capture greenhouse gases. This can be accomplished through agriculture and forestry, or by using renewable energy or cutting factory emissions. The money that is made from trading these credits can go back to the landowner or the project reducing the emissions, as well as the middleman facilitating the trade.
One of the biggest challenges with establishing a trade carbon credits price index is that different carbon reduction or removal projects will have varying levels of “value” for their impact on the climate. This is due to factors like additionality, permanence and the risk of leakage. It is important to understand how these values are determined in order to make a more informed decision on what to invest in.
To help mitigate this challenge, IHS Markit has created a carbon credit index that is intended to provide investors and traders with a better understanding of the pricing trends for carbon credits. The index is based on a number of criteria, including:
How Trade Carbon Credits Are Calculated
In addition to the carbon credit index, IHS Markit also provides several other helpful resources for investors in carbon-intensive industries. Its Carbon Price Forecasting service helps companies predict the potential impact of future changes in carbon prices on their operating costs. It also helps companies develop strategies to lower their carbon footprint and meet regulatory requirements, or avoid the impact of upcoming regulations on their bottom line.
Another tool is its Carbon Emissions Index, which helps investors and traders identify the carbon risks of individual stocks by identifying those with the highest carbon exposure. The index is updated on a daily basis to reflect current market conditions and changes in the cost of carbon credits.
The voluntary carbon market has been gaining popularity in recent years, especially with corporations setting goals to achieve net-zero carbon. However, the process of establishing an international carbon trade remains complex. Various stakeholders must come together to establish a common time frame, common price, common measurement and transparency.
Despite these challenges, there is still hope for a global carbon market. Several governments and companies are currently running their own compliance markets, or cap-and-trade systems, where they set a limit on how much carbon emissions they can release. If they reduce their emissions below that limit, they can then sell their excess credits to others.
A large percentage of the carbon emissions trading market is conducted through these compliance markets. This includes the European Union Emissions Trading Scheme (EU ETS), which has been operating since 2005. It is also possible to find and purchase carbon credits through private voluntary carbon markets, or VCMs. While these markets don’t operate under the same rules as a compliance market, they do allow for buyers to negotiate prices with sellers. They also tend to have higher prices than those of the carbon credit index, reflecting a range of additional benefits.
