The Global Carbon Credit Market Just Turned Hot

The global carbon credit market is witnessing a lot of momentum amid rising oil prices and the increasing energy crisis in Europe. Carbon credits were introduced as a system to reduce greenhouse gas emissions by creating a market in which companies can trade in emissions permits. The Paris climate agreement can be accredited for the creation of a global carbon market. The sector is expected to witness higher demand in the face of rising global emission levels and provides good investment opportunities for investors. Countries will get rewarded for all kinds of activities to reduce pollution. For instance, Gabon a heavily forested country in Africa received payment for cutting carbon emissions. According to a study, the global market is estimated to exceed US$2.4 trillion by 2027, up from US$211.5 billion in 2019. Investors might, however, face volatility in the short term.

There are several ETFs (exchange traded funds) that provide exposure to compliance carbon credit markets which are controlled by government entities, especially in the U.S. and Europe. Few leading examples include KraneShares European Carbon Allowance ETF (KEUA), iPath Global Carbon ETN (GRN), KraneShares Global Carbon Strategy ETF (KRBN), etc. The governments in these markets have the authority to set the price for companies to buy carbon credits to offset emissions. Not only do these companies earn carbon credits, but can sell to other companies as well. One carbon credit permit allows only one tonne of CO2 or any other GHG to be emitted.

Establishing a carbon credits market makes complete sense in countries where emission levels are high. This will help organizations trade their carbon credits effectively and in an organized manner and will increase the pace of carbon footprint reduction in the home country as well. For developing nations, it is important to imbibe the rules now as it will direct economic activities in a way keeping the country’s carbon goals in perspective, making the world a better place for the next generation.

Also, read  Brace Up For Carbon Credit Trading in India.