What Is a Carbon Market?

As the world begins to wake up to the far-reaching dangers of manmade climate change, politicians across the world have attempted to put in place measures which limit the emissions of damaging greenhouse gases. Carbon is one of the most commonplace contributors to global warming, so it has understandably been the focus of initiatives to curb its concentrations in our atmosphere.

A carbon market is one tool that is being used to try and address climate change. The theory behind such an approach is that if overall emissions levels are being brought under control, it doesn’t matter specifically where carbon is being emitted. Therefore, a carbon market allows factories, power plants and other industrial and commercial sources of emission to buy or sell their carbon emission credits, thus meaning that CO2 emissions are controlled where it is easiest to do so.

The European status quo

An EU-wide carbon market under the name of the Emissions Trading Scheme (ETS) was introduced in 2005 across 31 countries and incorporating more than 11,000 installations in the bloc and beyond. With a cap in place upon the maximum amount of emissions that a company can produce, there is a tangible incentive for them to transition to more sustainable and environmentally-friendly methods of operation.

Those which put in place measures to curb their emissions can sell their excess credits for a profit. Meanwhile, those which lag behind in addressing the problem are forced to either buy credits from other companies, or else face penalisation in the form of substantial fines from the authorities. In this way, the market dictates the price of carbon emissions and encourages companies across the board to pursue a less polluting way of doing things.

The British crossroads

With the UK having now left the EU, it is facing a decision for which way it will fall regarding its emissions in the future. It has remained within the ETS until the end of this year, but with the expiration date just days away, no alternative arrangements have been agreed upon or enshrined into law. This means the UK is facing something of a crossroads with regard to how it tackles the issue.

On the one hand, it can choose to implement its own domestic carbon market, operating on similar (but distinct) principles to those contained within the ETS. On the other hand, the government could choose to eschew a carbon market altogether, instead bringing in a carbon tax that would charge all companies for their CO2 emissions above a pre-determined level.

A carbon market looking more likely

At the present time, it seems as though a carbon market is looking like a more preferable option to a tax. This is because big corporations and industrial giants based in the UK – such as those operating in the steel sector – see the tax as something which would put them at a significant disadvantage in relation to their European counterparts.

Whichever way the government decides to tackle the problem of carbon emissions, it must act soon. Besides limiting the release of new amounts of carbon into the atmosphere, there is also a need to remove that which is already present. With that in mind, the scientific community has been pursuing technological developments in carbon capture and storage (CCS) of late, as a sustainable means of cleaning up our environment.