The global carbon credits provide business with a verified method to balance unavoidable carbon footprint by directly supporting projects that are proven to reduce carbon emissions. One Carbon Offset/Credit represents the reduction of greenhouse gases equal to one metric ton of carbon dioxide equivalent (CO2e). The United Nations' Intergovernmental Panel on Climate Change (IPCC) developed a carbon credit proposal to reduce worldwide carbon emissions in a 1997 agreement known as the Kyoto Protocol. The Kyoto Protocol was signed in Kyoto, Japan, in 1997 by 192 industrialized countries. Countries that ratify the Kyoto Protocol are assigned a maximum limit of CO2 emission levels. Emitting more than the assigned limit will result in a penalty for the violating country in the form of lower emissions limit for the following period. However, if a country wants to emit more greenhouse gases than its allowed limit (without penalty), then it may participate in carbon trading using an Emissions Reduction Purchase Agreement (ERPA).
The global carbon credit market is divided into two types, suppliers market and buyers’ market. The emerging economies such as China, India, and others (with relaxed rules for carbon emission as per Paris agreement in 2015) are considered as global suppliers for carbon credit market. India is becoming one of the emerging players for global carbon credit market, however, lack of awareness about carbon credit market among the Indian companies is expected to hamper the Indian carbon credit market growth. As India's GHG emission is below the carbon cap limit, Indian companies are entitled to sell surplus credits to developed countries.
Market Dynamics
Credit market is expected to grow significantly during the forecast period, owing to the increasing investment in the carbon credit market. At present, the carbon credit market is only limited to companies that are dealing with carbon emissions and its regulations. However, the rapidly growing global carbon credit market is expected to attract funding from various financial institutions such as venture capitals, banks, and others. On the other hand, international non-profit organizations are also investing in the carbon credit market in order to fund and promote scalable climate and environmental actions. . The demand for carbon credits will significantly grow in the coming decades as the companies are focused on net zero targets and are working toward reducing carbon emissions. A carbon credit represents the right to emit greenhouse gases equivalent to one ton of carbon dioxide. Several businesses are now adopting this technique of partially using carbon credits, which is benefitting them significantly. They are getting involved in projects and activities that are helping them generate offsets. They use as many credits as they want according to the limit set for a project and if they have a few left, they are used later for another project. This not only helps them save a significant amount of money, which can aid them in investing in more such credits.
Among sector, forestry segment is expected to exhibit the highest growth during the forecast period. Forests play a vital role in combating climate change. Tropical forests cover about 15 percent of the world’s land surface and contain about 25 percent of the carbon on the planet’s surface. The loss and degradation of forests accounts for 15 - 20 percent of global carbon emissions. The majority of these emissions are the result of deforestation in the tropics, largely due to conversion of the forest to more lucrative economic activities such as agriculture and mining. The market for forest carbon credits has been significantly growing over the past ten years. Currently, there are three different project types that are eligible to produce carbon offsets; afforestation or reforestation, avoided conversion, and improved forest management (IFM). Improved forest management projects are the most common compliance offsets traded in California’s cap and trade program.
Key features of the study
Market Segmentation
Table of Contents
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