FAQs about Carbon Markets

1. What are carbon markets and what are their objectives?

Through the Kyoto Protocol, adopted in November 1997, 37 industrialized countries and the European Union pledged to reduce at least 5% of greenhouse gas (GHG) emissions between 2008 and 2012, based on emissions from 1990.

For this, they devised the “carbon bonds”, also called Certified Emission Reductions (CERs)These carbon credits are similar to other bonds that are traded in the markets, but with certain regulations and mechanisms of their own in regional, national or international carbon markets. The idea of its creation was to encourage, instead of forcing, the different actors to stabilize and reduce their GHG emissions.

The objective of the carbon markets was to reduce carbon dioxide emissions globally. At the beginning, the bonds were distributed among the main GHG emitting industries, required by law to issue an amount equal to or less than the bonds delivered.

The bonds could be sold and bought in the carbon markets, according to the needs of the issuer. In this way, if a company did not consume its carbon credits it could sell them in the market, where another company bought them to be able to exceed its GHG emissions.

On the other hand, if a developing country performs sustainable actions, such as the construction of a wind farm, installation or production of solar panels or reforestation of a forest, it can sell a “credit” to a developed country, which accounts for cover your GHG surplus emissions.

Each carbon bond usually equals one ton of CO2 emitted, but depending on the type of GHG it can be stipulated in a different amount.

Recommended reading: From Kyoto to Paris, history of two climate agreements

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