The global carbon market has grown significantly in recent years, with the value of traded carbon permits hitting a record high of $909 billion in 2021. Despite a 20% decrease in the volume of permits traded, the market value rose by 14% due to higher prices for permits.
This growth in the carbon market is driven by the surge in energy demand and European Union (EU) reforms. The EU Emissions Trading System (EU ETS) is the world's biggest carbon market, accounting for 87% of the global total, and was worth around €751 billion last year, up 10% from the previous year. The increase in carbon prices in the EU ETS is attributed to energy prices surging following the war in Ukraine.
Carbon markets are market-based tools designed to limit greenhouse gas emissions by putting a cap on the amount countries or companies can emit. If they exceed those limits, they can buy permits from others. Carbon markets have been successful in reducing emissions in many countries and have been instrumental in facilitating the transition to renewable energy.
One of the main challenges in combating climate change is finding sustainable solutions that do not harm biodiversity. Therefore, it is essential to focus on solutions that benefit both the environment and the economy. Carbon markets are one such solution that has shown promising results. By putting a price on carbon, companies are incentivised to reduce their emissions and transition to cleaner energy sources.
The growth in carbon markets is also significant in terms of the global transition to renewable energy. Renewable energy is a key solution to combat climate change and reduce greenhouse gas emissions. The carbon market facilitated the development and adoption of renewable energy by providing a financial incentive for companies to transition to clean energy sources. This has resulted in the rapid growth of the renewable energy sector in recent years.
In addition to the EU ETS, there are two regional carbon markets in North America: the Western Climate Initiative and the Regional Greenhouse Gas Initiative, worth over €60 billion combined last year.
China's national emissions trading scheme launched in mid-2021, but its development was slowed by other priorities, such as the COVID-19 pandemic. However, it is expected that China's carbon market will grow rapidly in the coming years, given its significant carbon emissions.
Despite the growth in the carbon market, there is still a long way to go in terms of combatting climate change and protecting biodiversity. Carbon markets alone cannot solve the problem, but they can be an effective tool when used in conjunction with other solutions. The key is to continue focussing on sustainable solutions that benefit both the environment and the economy.
In conclusion, the growth in the global carbon market is a positive sign in the fight against carbon emissions. Carbon markets have shown promising results in reducing emissions and facilitating the transition to renewable energy. However, much work still needs to be done, and we must continue focussing on sustainable solutions that protect biodiversity while combatting carbon emissions.
