Carbon Market

Man will always try to get a business out of something. That is how carbon banks are

born, within this globalized world facing substantial Climate Change. The Carbon Banks'

concept sounds like a new way for humans to make money. In his article, Gunderson (2021)

mentions that the Minnesota Agribusiness desire to utilize climate changes issues for some

farmers to make money. The carbon market appears in the world as a complementary,

alternative, and economically viable way to the commitment assumed by countries, companies,

or individuals to reduce the emissions of gases that aggravate the Greenhouse Effect's problem.

According to Rolle, Professor Chichilnisky's idea of the Kyoto protocol's prerogatives'

fulfillment and observance is the essential instrument destined to fight against climate change

(Rolle, 2016, para. 1). It contains the commitment assumed by the majority of industrialized

countries to reduce their emissions of some greenhouse gases. Greenhouse, responsible for

global warming, by an average of 5%, or it may be within the voluntary market, which is not

legally binding but has been developed in response to those interested in becoming carbon

neutral. Carbon neutral means removing both carbon dioxide and added carbon dioxide from the

atmosphere. In all markets, the unit of measurement is the Ton of Carbon Equivalent (tCO2e).

That unit quantifies emissions or emission reductions. Countries that have surpluses, that is, that

have saved more emissions than those to which they were obliged, can sell these surplus rights to

countries that have not yet achieved their goals. The Kyoto Protocol has established three classes

of necessary exchanges in the carbon market:

 emissions trading between member states

 the development of joint projects between developed countries

  the clean development mechanism in which developing and developed countries

participate

The Carbon Market is completed with regional markets, such as those of the European

Union, United Kingdom, and Japan, linked to the Kyoto market, but which increase the

framework convention's obligations. Newell et al. (2013) mention in their case study that we are

starting to see more and more regional, national, and even subnational markets are emerging (p.

123). The carbon market allows carbon to be exchange measures such as reductions within these

markets' actions and conditions.

As in any market or paper transaction, the available product has a value greater than the

promise or obligation in the future. The tCO2e in the European market, for example, has a daily

price that oscillates in the 16 Euros, on authorizations of emissions extended by the States and

available in the act; therefore, the market for Emission Reduction Certificates or emission

reduction certifications also operates in the so-called spot market. On the contrary, the Emission

Reduction Certificates that arise from Clean Development Mechanism projects may be the

subject of future transactions. Whose value depends on the project's seriousness, the security it

provides of compliance with the promised reductions, the host country's implicit risk (legal and

political security, opening to markets, respect for contracts).

There are two types of carbon markets such as regulatory compliance and voluntary. By law,

companies and governments are held accountable for their Greenhouse Effect emissions in the

regulated market. It is regulated by mandatory carbon reduction regimes, whether national,

regional, or international. The voluntary market in this market instead, the credit trade occurs on

an optional basis. The dimensions of the two markets differ markedly. In 2008, the carbon
market traded 119,000 million US dollars in the regulated market, and in the voluntary, 704

million US dollars.

To comply with the Kyoto Protocol's stipulations, the treaty provides a series of mechanisms

with which these signatory countries can amortize their polluting emissions. Within these, the

purchase of the so-called Carbon Bonds by the industrialized from the underdeveloped countries

is one of the most important, through third world companies, Those actions can achieve

surpluses by changing their way of producing or by afforestation of areas searching for turning

them into actual "green lungs" of the planet, among others. The creation of carbon credits

responds to the need to reduce polluting emissions that cause the so-called greenhouse effect,

which, in turn, is what causes the Earth to have more significant warming and with the

consequent risks for man and his environment.

Newell et al. (2013) tell us that carbon credits are a mechanism born within the Kyoto

protocol framework, which contains two critical decisions (p. 128). First, Greenhouse Gas

(GHG) emissions, setting a deadline and a goal. Secondly, the Kyoto protocol framework can

achieve carbon reductions through the so-called Clean Development Mechanism (CDM). This

means that GHG reductions count, for purposes of compliance with the obligations of

industrialized countries, regardless of where they materialize, whenever climate change is a

global phenomenon—knowing the need to avoid global warming of the earth. Industrialized

countries devised this new system to increase the number of forests capable of recycling the

carbon dioxide emitted by industries and automobiles.

Thus, in recent years extensive reforestation of the Amazon rainforest has been promoted.

For example, to reverse the indiscriminate logging effect to which it was subjected. For this

reason, ways of measuring how much carbon a tree recycles are established, and planting a
certain number of trees allowing scientists to calculate that these trees recycle a certain amount

of carbon dioxide. The company that has these trees will be able to compensate its greenhouse

gas emissions with this afforestation. Under this premise, the interest arisen from the business of

carbon credits in large foreign consortia and local business people could be understood as an

alternative to the traditional agriculture, wood industry, or ecotourism.

The global market for Carbon allows global companies that reduce their CO2 emissions to

sell this reduction to companies in developed countries obliged to emit fewer Greenhouse Gases,

generating both economic and environmental benefits. The sale of these bonds to industrialized

countries allows other countries to enter the global decontamination market fully. From a

personal perspective, this mechanism enables the development of investment projects that

otherwise could not be carried out and allows them to obtain resources to improve their

technologies or introduce cleaner energy.

 References

Gunderson, D. (2021, February 7). A 'carbon bank' could mean extra cash for Midwest

farmers. Retrieved from https://www.mprnews.org/story/2021/02/07/a-carbon-

bank-could-mean-extra-cash-for-midwest-farmers

Newell, R. G., Pizer, W. A., & Raimi, D. (2013). Carbon Markets 15 Years after Kyoto:

Lessons Learned, New Challenges. Retrieved from

https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.27.1.123

Rolle, M. (2016, September 1). Reversing climate change: Interview with Graciela

Chichilnisky. Retrieved from

https://www.globalpolicyjournal.com/blog/01/09/2016/reversing-climate-change-

interview-graciela-chichilnisky