\u2022 What are carbon credits and carbon offsets?<\/a>
\u2022 Where do carbon markets exist?<\/a>
\u2022 Are there any carbon markets in India and South Asia?<\/a>
\u2022 Why are carbon markets controversial?<\/a>
\u2022 What does the Paris Agreement say about carbon trading?<\/a><\/h3>\n\n\n\n
What are carbon markets and how do they work?<\/h2>\n\n\n\n
Carbon markets are also known as emissions trading schemes. They are agreements in which countries or other entities, such as businesses, exchange permits to emit carbon dioxide, often known as carbon credits. <\/p>\n\n\n\n
Under a carbon trading market, nations or companies can reduce their carbon emissions to below certain agreed levels and sell the leftover emissions \u2018allowance\u2019 \u2013 in the form of carbon credits \u2013 to others that are still polluting beyond these limits. In theory, this provides a financial incentive to reduce emissions.<\/p>\n\n\n\n
Carbon markets are widely seen as a way to capture the costs of climate change, including more frequent and intense heatwaves<\/a>, storms, floods, droughts and sea level rise. Despite being driven by the use of fossil fuels, the costs involved in preparing for these climate disasters<\/a> \u2013 and rebuilding after they have struck \u2013 are not directly accounted for in the price of fossil fuels. Instead, these costs \u2013 or externalities \u2013 are usually borne by citizens and governments, including those who have little past or present responsibility for the greenhouse gases present in the atmosphere today. A carbon market could in theory shift these costs onto the polluters, who would have to spend money to purchase more credits to enable polluting activities to continue.<\/p>\n\n\n\n There are two main types of carbon trading: credits and offsets. Carbon credits, which are essentially tokens representing future emissions, are issued by governments to companies. Only those which emit less than their \u2018allowance\u2019 \u2013 and so end up with excess credits \u2013 can then trade them on the market. <\/p>\n\n\n\n Carbon offsets are created by and traded between companies. If a company does something to remove carbon from the atmosphere, such as planting trees, it may count this as a carbon offset, and trade it with other organisations in the market. Individuals can also \u2018offset\u2019 their carbon emissions, generated by high-carbon activities such as flying, by donating to carbon removal projects<\/a>, such as forestry programmes or renewable energy development.<\/p>\n\n\n\n Currently, there is no global carbon market. However, there are 68 carbon pricing programmes<\/a> at regional, national and subnational levels. The biggest national carbon market was launched by China<\/a>, the world\u2019s largest emitter, in 2021, overtaking the European Union\u2019s Emissions Trading System (ETS), which covers 40% of the EU\u2019s total emissions<\/a>.<\/p>\n\n\n\n Countries in South Asia are yet to adopt national carbon trading systems, although most are exploring their potential. According to the World Bank, Pakistan is considering<\/a> an emission trading scheme.<\/p>\n\n\n\n India is reportedly<\/a> starting to explore a comprehensive carbon market, although this is at an early stage, with little detail available on how a nationwide carbon trading market would work.<\/p>\n\n\n\n India currently has two market-based emission reduction schemes: Perform, Achieve and Trade (PAT) and Renewable Energy Certificates (REC). The PAT scheme rewards energy efficiency gains in energy-intensive industries such as thermal power, cement, iron and steel. Operators in these sectors set targets to reduce their energy consumption. If they exceed these targets, they are rewarded with credits they can trade. Renewable Energy Certificates encourage businesses to purchase and exchange credits based on the amount of clean energy produced, a measure that so far has had limited success<\/a>, with little uptake in most Indian states.<\/p>\n\n\n\n Most recently, the relatively wealthy state of Gujarat announced plans to roll out the country\u2019s first fully fledged carbon market<\/a>, which if successful could become the blueprint for carbon trading in India.<\/p>\n\n\n\n A potential nationwide carbon market in India, the details of which have not been disclosed, would replace these experiments.<\/p>\n\n\n\n Critics argue that carbon trading allows rich countries to avoid reducing their greenhouse gas emissions by simply purchasing as many credits as they need to maintain a highly polluting status quo.<\/p>\n\n\n\n While most policy experts and economists agree that putting a price on greenhouse gas emissions is a useful part of an overall strategy to reduce their concentration in the atmosphere, carbon markets have in practice been fraught with imperfections. For example, credits need to be scarce to keep prices high. The EU Emissions Trading System initially failed after its 2005 launch because there were too many carbon allowances<\/a> on the market. Over time, the price of these credits has fluctuated as the EU has been attempting to better regulate their circulation. <\/p>\n\n\n\n Another issue governments are trying to solve is carbon leakage, which occurs when companies move their polluting operations to other countries where carbon emissions are not strictly regulated, so they don\u2019t have to pay for credits to cover the pollution they generate. To curb this risk, in 2021 the EU approved the Carbon Border Adjustment Mechanism (CBAM)<\/a>, under which EU importers would match the cost of carbon emissions from goods they buy from outside the bloc, as if they were part of the EU Emissions Trading System. However, experts in developing countries<\/a> that export carbon-heavy products to the EU have argued that this would severely damage their economies, in turn hampering their energy transition efforts. Most recently, in June 2022<\/a> the CBAM framework and a proposed revision to the EU\u2019s Emissions Trading System were rejected by the European Parliament in their original form, reopening the debate.<\/p>\n\n\n\n When it comes to offsets, the carbon removal capacity of many projects involved in such schemes, such as tree planting and converting waste to energy, has been questioned, because these activities\u2019 capacity to absorb carbon is hard to measure and depends heavily on how each project is managed. These issues could reduce the effectiveness of the trading systems that rely on them.<\/p>\n\n\n\n The 2015 Paris Agreement includes a section, the hotly debated Article 6<\/a>, which addresses carbon markets specifically. Rather than a clear obligation under the Agreement, they are referred to as \u2018voluntary cooperation\u2019 towards meeting countries\u2019 respective climate goals.<\/p>\n\n\n\nWhat are carbon credits and carbon offsets?<\/h2>\n\n\n\n
Where do carbon markets exist?<\/h2>\n\n\n\n
Are there any carbon markets in India and South Asia?<\/h2>\n\n\n\n
![\"Gujarat](\"https:\/\/dialogue.earth\/content\/uploads\/2022\/06\/Gujarat-Solar-Park_Alamy_DRAT6C-scaled.jpg\")
<\/div>Why are carbon markets controversial?<\/h2>\n\n\n\n
What does the Paris Agreement say about carbon trading?<\/h2>\n\n\n\n