glossary

Carbon Markets

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The carbon markets are comprised of market-based instruments that put a price on emissions of greenhouse gases, thus promoting efficient climate change mitigation. There are two different approaches which lead to the creation of carbon markets: emissions trading schemes with tradeable emissions permits (allowances) and crediting mechanisms to enable issuance and the trading of carbon credits.

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Emissions trading schemes set a regulatory ceiling or โ€˜capโ€™ on greenhouse gas emissions through a cap-and-trade system, such as European Unionโ€™s Emissions Trading Scheme (EU-ETS), and in the US, the California Carbon Market. These schemes can be introduced at various levels (international, national, subnational) and, depending on their design, can cover either businesses or governments.

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The voluntary carbon markets function outside, but in parallel of, the compliance market. This market offers businesses, NGOs and individuals the possibility to offset emissions on a voluntary basis by purchasing carbon credits, with no intended use for compliance purposes.

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