Carbon credits are likely to become a part of every aspect of life in the coming years as this new development is fuelled by the global trend of decarbonisation resulting from concerns about climate change.
Every person has a carbon footprint. An average American citizen, for example, is responsible for around 15.5 tonnes of carbon dioxide emitted each year. By the age of 90, a US or Canadian citizen is predicted to have emitted around 1,395 tonnes of carbon dioxide in total. This is the equivalent of emissions from 300 passenger vehicles in one year.
Not every action emits an equal amount of carbon emissions. Some activities - like planting a tree - have the opposite effect and absorb carbon from the atmosphere. Carbon credits have been around for 15 years. These credits aim to penalise carbon emitters and create pressure for a reduction in carbon-emitting behaviours. Carbon credits make carbon emissions more expensive in an effort to make companies find ways to reduce or eliminate their carbon emissions.
There are 2 types of carbon markets: Voluntary and Compliance. Compliance markets are predominantly a government-created cap and trade scheme, such as EU carbon regulations. The Voluntary markets are where companies or individuals can offset their carbon footprint without non-compliance fines or reserve pricing. These actions can be carried out as a result of shareholder pressure, consumer pressure, or regulatory requirements. In order to support the investment required to meet the goals of the Paris Agreement, the Voluntary carbon markets need to grow 15x by 2030.
The prices attached to carbon credits vary depending on several factors. These factors include the nature of the project and where the carbon originates. Many carbon credits have co-benefits, such as biodiversity preservation or job creation. This can attract premium pricing. Different certification bodies validate both the quantity and quality of carbon credits. Factors like vintage, referring to the year the emission reduction occurred, can also affect the price.
The integration of Carbon Credits into everyday financial life is a reality that is fast approaching, and is a matter of when rather than if. Speak to one of our team today to ensure that you and your business interests are future proofed and ready for the Carbon Credit age!
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