Carbon credit exchanges enable buyers and sellers to connect on a global basis in an efficient, transparent, and secure way. They also provide the market with price signals that help players know when they are trading carbon credits at a value that reflects their real market worth. But putting a price on carbon credits is complex due to the many factors that influence their value. Exchanges have been working to simplify and speed up the process by creating standard products that ensure some basic specifications are met.
For example, Xpansiv CBL and ACX have set up standard products such as the Nature-based Global Emission Offset (N-GEO) and the Global Nature Token. Credits trading under these labels are guaranteed to have certain characteristics, such as the type of underlying project, a fairly recent vintage, and a certification from a restricted group of standards. The underlying projects must meet a rigorous set of requirements, such as quantifying ecosystem services and demonstrating good governance over the long term. One example is the Plan Vivo standard, which enables community land use and forestry projects to generate results-based payments that support sustainable development.
Typically, carbon credit exchange are created through agricultural and forestry practices, but they can also be generated through a number of other methods that reduce, sequester, avoid or destroy greenhouse gas emissions. Individuals or companies that want to offset their own emissions can purchase them from a middleman or those directly capturing the credits, such as foresters who plant trees and reforest and farmers that grow biofuel crops. The middleman earns money for his or her service, and the buyer receives an amount of carbon credits equal to the total emissions reductions resulting from the transaction.
The largest segment of the carbon market is called a compliance market because it is driven by government policies that dictate maximum emission limits for specific sectors, such as energy or transportation. Polluters must either buy or sell carbon credits to remain within their allowed limit, or pay a fine if they exceed it.
Voluntary markets, on the other hand, allow the trade of credits outside of a regulatory environment. They are largely driven by an international agreement to reduce greenhouse gases, known as the Kyoto Protocol. Companies can opt to purchase credits in these markets, which are less regulated, to offset their emissions or to hedge against the impact of potential climate change regulation.
There are several ways to learn more about the carbon market, including attending educational events and contacting the National Indian Carbon Coalition. The Coalition can help tribal nations find the right partners, develop realistic expectations and protect their lands from unscrupulous entities that promise pie-in-the-sky projections of revenue. The Passamaquoddy Tribe, for instance, has used its carbon revenue to purchase ancestral lands, provide services to members and reinvest in infrastructure, all while protecting the forests that have sustained them through centuries. It is the hope of the Coalition that other tribes will follow suit and take advantage of this new opportunity to bring in a much-needed stream of income.
