Companies Buy Carbon Credits
A carbon credit is half of what makes up a so-called cap-and-trade system that incentivizes companies to reduce greenhouse gas emissions. In a cap-and-trade program, regulators set a limit on how much a company can pollute each year (the “cap”). If a company produces more than its allotted amount of CO2e (carbon dioxide equivalent), it must buy additional credits from other companies that have produced less than theirs. Then, it can sell its excess credits. Proponents of these programs argue that they are far more efficient than traditional pollution controls and provide an economic incentive for companies to invest in cleaner technologies.
While carbon credit exchange markets aren’t mandatory in any country, many businesses and consumers participate in them voluntarily to offset their emissions. This has given rise to a massive marketplace, valued at over $2.4 trillion by 2027, that encompasses two significant, separate markets. One is the regulated market, set by cap-and-trade regulations and mandates in individual states and nations. The other is the voluntary market, which involves businesses and individuals buying credits from climate action projects to offset their own emissions.
Both of these markets operate in a highly fragmented manner, with buyers and sellers interacting in private conversations or via over-the-counter deals. The lack of liquidity in the market impedes efficient trading and raises uncertainty about prices, quality, and verifiability. Inconsistent accounting and verification methods, varying attributes that affect pricing (such as project type and region), and infrequent demand signals make it challenging to match the right supplier with the right buyer.
Why Do Companies Buy Carbon Credits?
To create a large, transparent, and verifiable carbon credit market, we need to improve the way these marketplaces link supply and demand. To do so, they need a common set of core carbon principles and an attribute taxonomy to ensure that a credit meets quality thresholds that buyers value. Exchanges need to facilitate a robust supply of vetted credits by providing liquidity, risk-management services, and financing.
In addition, a centralized platform for trading carbon credits would provide critical information for policymakers evaluating how to scale up voluntary and regulated emissions reductions. This would include the opportunity to compare the performance of different trading systems and to understand how they differ in their ability to connect buyers with suppliers and price volatility.
In order to realize the full potential of the carbon marketplace, we need a platform that brings together multiple players, from individual brokers and project developers to multinational conglomerates. The best carbon credit exchanges gather these players under one roof and offer a range of services. The Carbon Trade eXchange is an example of this kind of platform. It offers a spot and futures-based carbon market, as well as a variety of other services to its members. Check out our top 6 carbon credit exchanges to see which is the best fit for your business.
