A carbon credit is a tradable permit or certificate that provides the holder of the credit the right to emit one ton of carbon dioxide or an equivalent of another greenhouse gas – it is essentially an offset for producers of such gases. The main goal for the creation of carbon credits is the reduction of emissions of carbon dioxide and other greenhouse gases from industrial activities to reduce the effects of global warming. Carbon credit is a mechanism for the minimization of greenhouse gas emissions. Governments or regulatory authorities set the caps on greenhouse gas emissions. For some companies, immediate reduction of emissions is not economically viable. Therefore, they can purchase carbon credits to comply with the emission cap. A carbon offset that is exchanged in the over-the-counter or voluntary market for credits is referred as Voluntary Emissions Reduction (VER). Whereas, emission units (or credits) created through a regulatory framework with the purpose of offsetting a project’s emissions is called as Certified Emissions Reduction (CER). The main difference between the two is that there is a third party certifying body that regulates the CER as opposed to the VER.
An international carbon credit is being adopted by various countries and state government bodies, which is a major trend in the global carbon credit market. The Kyoto mechanism is vastly adopted by the European Union, for which the European Union launched European Union Emission Trading Scheme (EU ETS) in 2015. Through this, EU employs a basic cap and trade model for EU companies and countries. However, the government of the U.S. did not sign the Kyoto Protocol, thus there is no cap limit for carbon emissions in the country. Nevertheless, many companies and state government bodies are adopting voluntary commitment to reduce carbon emissions. For instance, in 2013, California's Cap-and-Trade Program, an initiative took by the state of California, started its own cap-and-trade program. The rule is applicable to electric power plants, industrial plants, and fuel distributors. In conclusion, the adoption of carbon credit by the local government bodies and companies is a major trend in the global carbon credit market.
In order to reduce the overall carbon emissions, companies have to adopt new advanced technologies for their manufacturing processes, which is costly. According to Coherent Market Insights’ analysis, it is found that many companies find it cheaper to purchase extra carbon credits rather than changing the whole manufacturing process.
Furthermore, the lack of global standardization in the carbon credit market is major factor that may hamper growth of the global carbon credit market during the forecast period. As the carbon credit market is a free market, the companies or an individual can purchase carbon credit from the open market. However, emerging economies such as India and China, which are contributing the highest amount of carbon emissions, are relaxed from the Paris agreement. Thus, they can sell large amounts of carbon credits to developed countries such as European companies. Therefore, irregularities present in the carbon emission law across the globe is a major restraining factor affecting the global carbon credit market growth.
Global Carbon Credit Market - Impact of Coronavirus (Covid-19) Pandemic
Globally, most of the countries are affected by COVID-19 and most of the countries have announced lockdown. Pollution and GHG emissions have fallen across the continents as countries imposed lockdowns and restrictions to contain the spread of the Covid-19. The COVID-19 has brought about short-term environmental benefits as temporary reduction in carbon dioxide and other greenhouse gases, as people were forced to stay at home and industries such as mining, construction, and textiles remained closed for a period. According to the OECD (The Organization for Economic Co-operation and Development) Organization, in China, carbon emission reduced by 25% which is equivalent to around 200m tons of CO2 (MtCO2) in month of February 2020, compared with the same month in 2019. Also, the pandemic has interrupted global supply chains, including those for renewable energy projects, which could delay or obstruct their completion. The carbon offset registries are also considering Covid-19’s impact on reporting period deadlines. If there are hold ups, such a delayed site visits, it may be difficult to finish verification within given reporting timeframe. The Climate Action Reserve is allowing programmatic deadlines to extend by 6 months – if the extension reason is directly Covid-19 related.
Europe held dominant position in the global carbon credit market in 2019
Carbon Credit Market Report Coverage
||Market Size in 2019:
||US$ 211.5 Bn
|Historical Data for:
||2017 to 2019
||2020 to 2027
|Forecast Period 2020 to 2027 CAGR:
||2027 Value Projection:
||US$ 2,407.8 Bn
- North America: U.S. and Canada
- Latin America: Brazil, Argentina, Mexico, and Rest of Latin America
- Europe: Germany, U.K., France, Italy, Russia, and Rest of Europe
- Asia Pacific: China, India, Japan, Australia, South Korea, ASEAN, and Rest of Asia Pacific
- Middle East and Africa: GCC Countries, South Africa, and Rest of Middle East and Africa
- By Sector: Energy, Transportation, Residential and Commercial Buildings, Industry, Agriculture, Forestry, and Water and Wastewater
WGL Holdings, Inc., Enking International, Green Mountain Energy, Native Energy, Cool Effect, Inc., ClearSky Climate Solutions, Sustainable Travel International, 3 Degrees, terrapass, and Sterling Planet, Inc.
- Increasing Global Warming Across The Globe
- Increasing Investment In The Carbon Credit Market
|Restraints & Challenges:
Europe held dominant position in the global carbon credit market in 2019, accounting for 51.2% share in terms of value, followed by North America and Asia Pacific.
Figure 1: Global Carbon Credit Market Share (%), By Region, 2019
Europe is expected to account for the largest market share during the forecast period. The developed countries in Europe such as the U.K, Germany, and other European countries are considered prominent buyers in the global carbon credit market. In order to become climate-neutral EU by 2050, the European Union launched EU Emissions Trading System (EU ETS) in 2005, an international emissions trading system. The EU Emissions Trading System (EU ETS) initiative is divided into four timely phased manner in which carbon emission is reduced in order to reduce greenhouse gas effects by at least 40% by 2030 compared to 1990 (as per Paris agreement, initiated in December 2015).
Asia Pacific is expected to exhibit significant growth during the forecast period. India is becoming one of the emerging players for global carbon credit market. As India's greenhouse gas (GHG) emission is below the carbon cap limit, Indian companies are entitled to sell surplus credits to developed countries.
Energy segment is expected to drive the market growth during the forecast period
Among sector, the energy segment is expected to hold dominant position in the global carbon credit market during the forecast period. For instance, according to Coherent Market Insights’ analysis, energy segment accounted for around 53.3 billion across the globe in 2019. Solar or Wind power is used to inject power to the grid, this can replace the power generated from the conventional energy sources thereby reducing the carbon dioxide emissions. Such projects can earn carbon credits in the form of Clean Development Mechanism (CDM) projects.
Figure 2: Global Carbon Credit Market Value (US$ Bn) Analysis and Forecast, 2017 - 2027
The global carbon credit market was valued at US$ 211.5 Bn in 2019 and is expected to reach US$ 2,407.8 Bn by 2027 at a CAGR of 30.7% between 2020 and 2027.
Major players operating in the global carbon credit market include WGL Holdings, Inc., Enking International, Green Mountain Energy, Native Energy, Cool Effect, Inc., ClearSky Climate Solutions, Sustainable Travel International, 3 Degrees, terrapass, and Sterling Planet, Inc.