The first step to carbon neutrality is to learn how the system works

I recently had the opportunity to spend three wonderful days in Anaheim, California. No, I wasn't visiting Disneyland; I attended the North American Carbon World (NACW) conference organized by Climate Action Reserve. When the Climate Action Reserve was launched in May 2008 with two projects on the platform, the average price of its carbon offset was $10.20 per tonne, which was then quoted as the highest price level in the market; It has not increased much since then. Although some carbon sequestration projects claim to receive value in the hundreds of dollars for each ton of permanently sequestered carbon, the average value of a general forestry project or other greenhouse gas (GHG) reduction mechanism remains in the single or low double digits. To understand why, we need to dig a little deeper into what shapes carbon markets.

What are carbon markets?

Regulated markets

There are two types of carbon markets: regulated and voluntary. Regulated markets are run by governments. According to the World Bank, there are around 70 of these programs around the world and they regulate around 12 gigatons of CO2 (about 23% of global emissions). The main markets created by these programs include the European Emissions Trading System (ETS) and California Emission Allowances (CCA). Regulated ETS, or cap-and-trade markets, typically set an emissions cap and lower it annually for industries operating within their jurisdiction. Unused allowances can be sold, which incentivizes companies to reduce their emissions and sell unused allowances. You can think of them as a license to pollute, and the license gets more expensive every year, incentivizing industry to pollute less.

Voluntary markets

Voluntary carbon markets are supported by entities such as the aforementioned Climate Action Reserve, along with others such as the South Pole, the Terrapass Review and many others. They create "offsets" from proven carbon reduction projects that the private sector can buy. In other words, instead of reducing emissions from their own operations, hard-to-reduce industries can finance reductions in off-site projects. Looking at some protocols can give you an example of these projects: forest protection, grassland management, low-emission rice cultivation, livestock methane capture, organic waste diversion, etc. (Shashi Menon Forbes Council Member, Forbes Business Council)