Carbon Credit Exchanges Expire

The world is putting a cap on carbon emissions, and some companies are taking the plunge. Using carbon credits as a preemptive measure, they can buy extra time to make environmentally friendly changes. Eventually, though, these companies will need to do more to offset their emissions. If they can’t, they will need to sell their excess credits. The result will be a multi-billion dollar market.

The United Nations Framework Convention on Climate Change (UNFCCC) contains several mechanisms for managing global carbon emissions. These include the Kyoto Protocol and the Clean Development Mechanism. These mechanisms allow countries to trade emission reductions, as well as to buy and sell carbon credit exchange them. They are administered through international registries. These registries also serialize and track carbon credits.

The most basic example of this would be the trading of physical carbon allowances through centrally organized auctions. These allowances can be bought and sold in futures contracts on commodities exchanges. These auctions can help make carbon emissions transparent and incentivize investment in green technologies. However, this process is not yet widely used. Some countries such as Switzerland have projects in place to buy these offsets. It is possible, however, that these projects may take some time to spread across the globe.

How Do Carbon Credit Exchanges Expire?

Aside from the obvious carbon trading schemes, there are also a number of more technical processes that can be utilized. The APX Registry and IHS Markit are two examples of such entities. These registries manage the chain of custody and serialize credits to verify their provenance.

The most important of these is the certificate of compliance, or CCO, which confirms that an entity has met its greenhouse gas emissions reduction goals. A CCO is a carbon emission reduction credit, and it can be measured in terms of carbon dioxide equivalent. These can be purchased from the host country in which they were issued, or they can be purchased from other companies. Usually, the cheapest and most efficient way to obtain these credits is to use a carbon trading scheme.

The other most important tidbit is the Internationally Transferred Mitigation Outcomes, or ITMO. This is a traded credit, and it is the smallest of the lot. Under Article 6.2 of the Kyoto Protocol, it is possible for a country to trade these credits with other countries. A registry is required to issue the certificate, and it is a good idea to make sure that your company isn’t the only one buying these credits.

The Kyoto Protocol was an ambitious effort to address climate change. The treaty is designed to encourage oil and energy industries to reduce emissions, and to motivate polluters to work together. In the process, however, it has created a market for carbon credits.

The true cost of carbon credits will only increase over time. This is because the cap decreases over time. The Kyoto Protocol established a cap of global emissions at the 1995 level. It also created a compensation mechanism to ensure that the cap is not too high.