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Primer: What is the Carbon Market?
What is a carbon credit?
A carbon credit is the dollar value placed on removing one tonne of carbon dioxide out of the atmosphere. The price floats, according to demand, but it's safe to say one carbon credit is valued between $10 and $25.
How big is that market?
At the moment, cap and trade of carbon credits is worth about $100 billion a year and is expected to at least double within the next two years.
Where is the carbon market?
It's now global. Canada has the Montreal Climate Exchange, which opened in 2008. North America's first functioning, government-regulated carbon market began in Alberta. Carbon credits are traded in Europe, and China is now getting into the business.
Who buys carbon credits?
Just about anyone and everyone. Consumers sometimes buy them to offset their own carbon footprints. But the biggest buyers are industry, which are anticipating regulations that will force them to offset their "carbon pollution". Some of the biggest buyers will be energy companies which burn fossil fuels like coal and oil.
Who can sell carbon credits?
Any company or institution that can decrease the amount of carbon dioxide they are putting into the air. For every tonne of CO2 of their carbon pollution they reduce, they can claim a carbon credit. Some companies, such as dumps that are decreasing their emissions, can make millions of dollars a year from their carbon credits.
How will the carbon market stop global warming?
The theory is that carbon credits will encourage people and companies to use cleaner technologies and punish those who don't. With each passing year, the amount of carbon a company can release will decrease, meaning it will become increasingly expensive to be a carbon polluter. That will drive up the price of carbon credits, which will encourage carbon-free technologies and energy sources.
Does paying to plant a tree make a carbon credit, or carbon offset?
In theory, yes. A mature tree absorbs about one tonne of CO2. If you grow one, you make one carbon credit to offset one tonne of your carbon footprint. In practice, however, a tree doesn't always make a carbon credit. For a tree to create a carbon credit, it must grow to maturity and absorb carbon dioxide as it grows, which can take 25 to 50 years. That means if you plant a seedling, you will create a carbon credit in no less than 25 years. And you have to make sure that your seedling survives to maturity, otherwise your carbon credit is never created anywhere other than on paper.
Will it work?
It's hard to say. The world has never tried to regulate a pollutant like this before. The concept has worked for acid rain, in which companies had to buy SO2 (sulphuric dioxide) credits amongst each other if they were polluting. But carbon credits take this to a scale that's never been attempted until now.