The Concept of Carbon Market

Carbon Market

What is Carbon Market?


Greenhouse Gas emission reduction mechanism.

Carbon market is one of the economic mechanisms for enhancing GHG mitigation. It continues to play practical and applied roles in international level for both developed and developing countries after Kyoto Protocol was effective on February 16, 2005.

Carbon Market is a market in which we trade carbons as products. There are two major types of carbon in the market;(1) “Carbon Credit” that is amount of GHG emission reduction from the projects and/or (2) “GHG Emission Allowance” that organizations can reduce lower than their allocated allowances under the Emissions Trading System. In this market, carbon can be tradable as offset for GHG emissions of the buyers.

At present, Carbon Market around the World could be divided into two types:

  1. Mandatory Carbon Market: the markets have been trading of carbon credits and GHG emissions allowances. The credits/allowances can be used to offset GHG emissions for achieving GHG emissions reduction with legally binding or in line with the international commitment. For example,  Carbon Markets under the Kyoto Protocol as follows;

  • Trading of the Assigned Allowance Units (AAUs) and Emissions Reduction Units (ERUs) from Joint Implementation Project among the countries in Annex I,
  • Trading of Certified Emissions Reduction (CERs) from Clean Development Mechanism (CDM) projects among the countries in Annex I or developed countries (as buyer) and the countries in Non-Annex I or developing countries (as seller).

  2. Voluntary Carbon Market: the market that built up without legal enforcement. The markets are usually set up by voluntary cooperation in private sector in order to cope with Climate Change. Participants in the market may have targets of voluntary cap-and-trade for GHG emissions reduction with Non-legally binding target and conduct buying or selling the carbon credits and GHG emission allowances for offsetting their emissions.

Type of the Carbon Market:

Besides, the Carbon Market could be classified by geographical boundaries to two levels as;

  1. Domestic Carbon Mechanism: the market mechanism has been trading of carbon credits and/or GHG emissions allowances between people or organizations in the country. The market could be mandatory market or voluntary market.

  For Thailand, Thailand Greenhouse Gas Management Organization (Public Organization) or TGO has developed Thailand Voluntary Emissions Reduction (T-VER) programme since 2014 with objective to support all relevant sectors, in particular for small project developers, to participate in the domestic voluntary GHG emissions. T-VER has simplified process and lower costs compared to the CDM project. Moreover, it has co-benefits of GHG emissions reduction, such as, reduce pollutions; increase shading and green areas; reduce consumption of energy and electricity; support community economy; and generate employment in environmentally friendly business, etc.

  2. International Carbon Mechanism: the market has been trading of carbon credits and/or GHG emissions allowances across the country. Main objective of this is to minimize costs of GHG emissions reduction, in case the buyer country has higher costs than that of the seller country. Samples of the international markets include;

  • European Emissions Trading Scheme: EU ETS is trading of carbon credits and/or GHG emissions allowances of the member countries in the EU and participating countries in the EU ETS totally 28 countries,
  • Linkage of Emissions Trading Scheme: ETS is trading of California, USA. And Ontario and Quebec, Canada that allows participants in energy sector of these states, where emissions reduction is legally binding, could buy GHG allowance from others to offset their GHG emissions.

Comparison between Mandatory Market and Voluntary Market

Content Mandatory Carbon Market Voluntary Carbon Market
Regulatory Agency Government Interest person or private organizations can conduct or set up new organization
MRV System National/Industrial level Entrepreneur level 
Market participant All sectors and focusing on intensive GHG emissions and medium and large business No specification depend on voluntary of participation
GHG emissions allowance allocation Both free allocation and auction Both free allocation and auction
Punishment

Defined punishment

No punishment but may provide incentives

How to generate carbon credits:

Types of carbon credits trading:

Buyer in the Carbon Market:

Annex I countries (under Kyoto Protocol), i.e. Government of developed countries, companies or industries who need to reduce their GHG emissions
Carbon Fund which is cooperation of government or private companies who need carbon credits
Carbon Broker, credit provider

Status of domestic and international carbon markets:

International carbon market

TGO has followed up movement of the 4 international carbon markets as follows;

  1. European Union Emissions Trading Scheme (EU ETS) market: the market has been trading of GHG emissions allowances in the EU in order to achieve GHG emissions reduction target of Kyoto Protocol. Allowances traded in the market is called “European Union Allowance (EUA)”

  2. Clean Development Mechanism (CDM) market: CDM is a mechanism under the Kyoto Protocol for helping the Annex I countries to achieve their GHG emissions reduction commitment during 2008 – 2012, to reduce emissions lower than the emissions in 1990 for 5%. The Annex I countries were allowed to buy carbon credits from CDM projects of the Non-Annex I countries. the CDM’s credit is called “Certified Emissions Reduction (CER)”

  3. California Carbon Allowance (CCA) market: the market has been trading of GHG emissions allowances of California, USA., in order to achieve GHG emissions target in California Assembly Bill 32 “California Global Warming Solutions Act of 2006” of California Air Resources Board

  4. Regional Greenhouse Gas Initiative (RGGI) market: the market has been trading of GHG emissions allowances established by the Power Plants in the member states, including Connecticut; Delaware; Maine; Maryland; Massachusetts; New Hampshire; New York; Rhode Island; and Vermont. They set cap of emissions from the power plants to reduce 2.5% annually compare to the base year of 2015 until 2020. Trading of allowances in the market is called “RGGI Allowance (RGA)”

For more information on the market status, please follow up;

  • TGO Carbon Newsletter [#]
  • Carbon Market Weekly [#]
  • Carbon Price of the international markets [#]

Thailand Carbon Market:

Overview of Thailand Voluntary Market

For more information of Thailand Voluntary Emissions Reduction (T-VER) programme, please visit http://ghgreduction.tgo.or.th/

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