In the lead up to the 2030 Agenda, the carbon market is emerging as an essential tool in the fight against climate change, encouraging the reduction of greenhouse gas emissions through a sustainable economic model. This week’s article explores the evolution of this market and highlights its vital importance in achieving a sustainable future. Read on:
The origin and evolution of the Carbon Market
The concept of a carbon market was introduced globally with the Kyoto Protocol in 1997, establishing the basis for carbon emissions trading. Since then, the market has evolved, adapting to new economic and environmental realities and expanding to include national and regional emissions trading schemes.
What is its importance?
The carbon market creates a financial incentive for companies and countries to reduce their greenhouse gas emissions, promoting investment in clean technologies and sustainable practices. In addition to being an ally in the race against climate chaos, the carbon market fosters an economic transition to greener business models, generating jobs and promoting sustainable innovation.
In 2021, the global carbon market saw impressive growth, with the value of traded carbon dioxide (CO₂) markets increasing by 164% to reach a record €760bn (approximately $851bn). This growth was largely driven by the European Union Emissions Trading System (EU ETS), the world’s most established carbon market, which began in 2005 and accounted for 90% of the global value, reaching €683bn.
In addition, revenues from carbon taxes and Emissions Trading Systems (ETS) reached a new record of around $95 billion, according to the World Bank’s 2023 annual “State and Trends of Carbon Pricing” report. This increase is notable given the challenging context governments have faced, including high inflation, fiscal pressures and energy crises.
Carbon Market Growth in Brazil:
According to a report by the Getúlio Vargas Foundation, citing data from the Ecosystem Marketplace, there was a significant increase in the volume of carbon credits generated in Brazil, with a growth of 236% in 2021 compared to 2020 and 779% compared to 2019. This growth is attributed to the voluntary carbon market, driven by the demand for carbon credits.
Revenue Generation Potential:
The International Chamber of Commerce (ICC) of Brazil points out that the country has the potential to generate up to US$100 billion in revenue from carbon credits by 2030, potentially supplying between 5% and 37.5% of global demand tied to business commitments.
Brazilian Market Profile:
Brazil ranks fourth worldwide in terms of the volume of carbon credits generated, with projects dominated mainly by Energy (63%) and Agriculture, Forestry and Other Land Uses (25%), according to data from Verra.
Regulated Carbon Markets:
There are currently 36 regulated carbon markets in place or in the pipeline around the world, covering more than 17% of global greenhouse gas (GHG) emissions, according to the World Bank. These markets are powerful tools for reducing climate footprints by incentivizing climate action in the lowest-cost sectors.
Expert Opinions:
Experts such as Camila Chabar, Sustainability and Climate Change Manager at EY Brazil, and Bruno Brazil, Technical Director at brCarbon, highlight the importance of the voluntary market and the growing demand for carbon credits. They point to the need for regulation to further boost the market and generate security for investors.
Valuation of Carbon Credits:
The trading of Verified Carbon Units (VCU) saw a significant increase in value, starting at US$ 4.3 at the beginning of 2021, jumping to US$ 8.50 at the end of the same year and reaching US$ 15 to US$ 16 in May 2022, evidencing the exponential growth in the asset value and trading volume in the carbon market.
Global engagement, challenges and opportunities
The carbon market involves both global efforts and local initiatives, enabling countries, regions and companies of different sizes to contribute to the fight against climate change. But despite its transformative potential, challenges such as the lack of global standardization and concerns about the environmental integrity of carbon offsets still need to be overcome. However, the growing awareness and commitment to global climate goals offers an unprecedented opportunity to strengthen and expand this market.
The truth is that the carbon market is a key component of achieving a sustainable future, offering a viable path to reducing global carbon emissions. As it evolves, its importance will only grow, playing a crucial role in the global transition to a low-carbon economy. Active participation from all sectors is essential to maximize its impact and ensure a healthier planet for future generations.
