Compliance vs. Voluntary Carbon Market

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Transition
August 19, 2024

Compliance Carbon Market:The compliance or regulated carbon market is driven by laws that mandate emissions reductions. Notable examples include the E.U.’s Emissions Trading System (EU ETS) and California’s cap-and-trade program. In these markets, governments set maximum emission limits for companies, often referred to as "allowances" or "credits." Companies can buy or sell carbon credits depending on their emissions relative to these limits.

Voluntary Carbon Market (VCM):In contrast, the voluntary carbon market operates independently of government regulation but has seen rapid growth due to the Paris Agreement's emphasis on corporate net-zero goals. Companies can purchase carbon credits to offset their CO2 emissions, often directly from developers who earn credits through carbon sequestration projects.

Digital Carbon Exchanges and Blockchain:Increasingly, carbon credit transactions are being facilitated through digital carbon exchanges, with many opting to use carbon tokens powered by blockchain technology. As the cryptocurrency landscape evolves, blockchain is being integrated into the burgeoning carbon credits market, offering innovative ways to trade and manage these assets.

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