How carbon markets work: A key tool in climate change mitigation
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Table of contents:
How carbon markets work: A key tool in climate change mitigation
How carbon markets work is essential to understanding one of the most effective tools we have in the fight against climate change. These markets are designed to reduce CO2 emissions and achieve global climate goals. But how do they function, and why are they important?
What are carbon markets?
Carbon markets are trading systems where businesses and individuals can buy and sell carbon credits. These credits represent the removal or reduction of GHG from the atmosphere. By purchasing carbon credits, organisations can reduce their emissions, helping them reach net-zero targets while contributing to climate mitigation efforts.
Types of carbon markets
Compliance Carbon Market (CCM)
Compliance Carbon Market (CCM) are regulated by governmental regimes at regional, national, or international levels. In these markets, businesses are required to reduce emissions based on set limits and can buy carbon credits to comply with regulations if they exceed these limits.
Voluntary Carbon Market (VCM)
Voluntary Carbon Market (VCM), on the other hand, is driven by companies, organisations, and individuals who voluntarily purchase carbon credits. This market operates based on broad industry standards.
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There are two main types of carbon markets
The importance of carbon markets
The carbon market is expected to grow to over $50 billion by 2030. This growth is driven by several factors, including:
The increasing demand for high-integrity carbon credits.
The limited but growing supply of available credits.
The urgency to take climate mitigation actions.
By participating in carbon markets, businesses can not only mitigate their climate impacts but also generate additional income from selling credits, which encourages sustainable practices. For more insights, read about the importance of voluntary carbon markets.
 "Graph illustrating voluntary demand scenarios for carbon credits in carbon markets, projecting significant growth by 2050 under various commitments and climate action pathways")
Graph illustrating voluntary demand scenarios for carbon credits in carbon markets, projecting significant growth by 2050 under various commitments and climate action pathways.
Understanding carbon credits in carbon markets
A carbon credit represents the reduction, avoidance, or removal of one tonne of CO2 equivalent (CO2e) greenhouse gas emissions. These credits are crucial in how carbon markets work, and they can be categorised based on two main factors:
By solution type
Nature-based solutions: These include initiatives like afforestation, soil carbon sequestration, and other land-based approaches that absorb CO₂ from the atmosphere.
Technology-based solutions: Examples include Direct Air Capture and biochar, where technology is used to capture and store carbon.
By mechanism
Reductions: These credits represent emissions that have been reduced.
Removals: These credits reflect CO2 that has been removed from the atmosphere and stored in soil, plants, or other forms.
Avoidance: These credits represent emissions prevented from entering the atmosphere, through projects like renewable energy or deforestation prevention.
Discover more about carbon credits and how they work.
 "Comparison of different carbon credit types in carbon markets, from reduction credits to net removal, highlighting how AgreenaCarbon contributes to achieving negative emissions.")
Understanding carbon markets through different types of carbon credits, including reduction and removal credits.
Factors influencing carbon credit prices
The price of a carbon credit can vary significantly, depending on:
The quality of the carbon sequestration or reduction.
Adherence to standards like Verra VCS, ISO, and Gold Standard.
Additional benefits such as biodiversity improvements, soil health, or community development aligned with UN Sustainable Development Goals (SDGs).
Understanding these factors can help businesses navigate the complex market of carbon credits and ensure they are purchasing high-integrity credits.
 "AgreenaCarbon credits contribute to carbon markets, offering nature-based solutions, emissions savings, and co-benefits like biodiversity and soil health improvement.")
In the growing carbon markets, AgreenaCarbon credits drive environmental and social benefits, from water conservation to sustainable food production and rural community support.
The AgreenaCarbon programme
One initiative within the carbon markets is the AgreenaCarbon programme, which focuses on soil carbon credits. This programme offers:
A farmers-first approach, supporting those who adopt sustainable practices.
Rigorous quality assurance processes.
Alignment with world-class standards to ensure transparency and reliability.
Assured co-benefits, such as improved soil health and biodiversity.
Learn more about the AgreenaCarbon Programme here.
Conclusion
Carbon markets are a crucial tool in the global effort to mitigate climate change. By understanding how carbon markets work, businesses and individuals can actively participate in the fight against climate change, while also potentially benefiting financially from the growing demand for carbon credits. As the market expands, so does its importance in helping us achieve a sustainable, net-zero future.
For more information on how you can get involved in carbon markets, visit Agreena’s Carbon Programme.
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