World Bank Takes the Lead: Unveils Ambitious Plan to Boost Global Carbon Credit Market

The combustion of fossil fuels results in the release of a substantial amount of greenhouse gases, mainly carbon dioxide. Carbon dioxide emissions occur directly or indirectly from individuals, organizations, events, or products. A carbon footprint measures the environmental impact in terms of carbon emissions. Governments and organizations worldwide are engaged in various initiatives to reduce carbon emissions. In 1992, the United Nations Framework Convention on Climate Change (UNFCCC) introduced the "Kyoto Protocol," an international agreement aimed at significantly reducing greenhouse gas emissions. Adopted in Kyoto, Japan, on December 11, 1997, it became international law on February 16, 2005. Under the Kyoto Protocol, countries were allocated a maximum number of carbon credits. If a country exceeded its assigned limit, penalties in the form of a reduced emissions cap for the subsequent period were imposed.

A carbon market is a system that facilitates the buying and selling of carbon credits, enabling entities to trade the right to emit greenhouse gases. The primary goal of a carbon market is to create economic incentives for reducing carbon emissions and promoting sustainable practices. There are mainly two types of carbon markets: voluntary and compliance. The compliance carbon market is regulated and established by governments, operating on a mandatory basis, with organizations required by law to participate and meet specific carbon reduction targets. In contrast, the voluntary carbon market operates independently of government regulations. It allows governments and other organizations to offset their carbon emissions on a voluntary basis to achieve sustainability goals. The Clean Development Mechanism (CDM), Joint Implementation (JI), and the EU Emissions Trading System (ETS) are three major mechanisms of the voluntary carbon market under the Kyoto Protocol. The major end-users of the industry include waste management, agriculture, energy efficiency, transportation, forestry & land use, chemical processes, industrial sectors, renewable energy, and carbon capture & storage.

In December 2023, the World Bank forged partnerships with 15 countries to expand global carbon markets, aiming to generate income from the sale of carbon credits derived from the preservation of their forests. These countries are anticipated to produce 24 million credits in 2024 and 126 million by 2028. The fifteen nations are part of the World Bank’s Forest Carbon Partnership Facility (FCPF), including Chile, Costa Rica, Cote d’Ivoire, the Democratic Republic of Congo, the Dominican Republic, Fiji, Ghana, Guatemala, Indonesia, Lao PDR, Madagascar, Mozambique, Nepal, the Republic of Congo, and Viet Nam.

Navigating the Green Wave: Unveiling the Key Market Drivers Behind Carbon Credits

According to a study by IMARC Services Private Limited , the global carbon credit market is expected to grow at a substantial pace in the coming years. The demand for carbon credits has significantly increased over time, driven by initiatives to reduce the carbon footprint worldwide. Various factors contributing to the market's growth are outlined below:

Favourable Government Policies: Governments worldwide are implementing supportive policies, regulatory frameworks, and setting strict targets to reduce greenhouse gas emissions. They incentivize emission reductions and sustainable practices, thereby driving businesses to actively participate in carbon credit markets as a strategic means of offsetting their carbon footprint.

Expansion of Carbon Pricing Mechanisms: Initiatives such as carbon taxes and emissions trading systems are boosting the carbon credit market by expanding carbon pricing mechanisms. Various countries have adopted this mechanism, putting a price on carbon emissions, thereby incentivizing businesses to reduce their carbon footprint. This dynamic creates a growing demand for carbon credits as companies seek cost-effective solutions to meet emission reduction targets and comply with regulatory frameworks.

Growing Corporate Sustainability Initiatives: The corporate sector is increasingly incorporating sustainability as a core business value. Companies are setting strict targets to reduce carbon footprints and integrating carbon credits into their strategies to achieve these goals. This factor is also anticipated to drive the carbon credit market.

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Increasing Demand for Emission Trading System: Emission trading systems, such as the European Union Emissions Trading System (EU ETS), have established a structured market for carbon credits. The establishment and expansion of these emission trading systems are propelling the demand for carbon credits among businesses that seek cost-effective ways to comply with emissions caps and trade allowances.

Innovations and Insights: A Snapshot of the Latest News in the Carbon Credit Industry

• In 2024, CarbonPool is poised to become the world's inaugural insurance company featuring a carbon credit balance sheet following a successful $12 million funding round. CarbonPool will play a pivotal role in advancing society towards net zero by offering in-kind insurance coverage for instances where net zero commitments face challenges due to shortfalls, reversals, business interruptions, or natural catastrophes. These incidents may either diminish the contracted carbon dioxide removals or inadvertently reintroduce carbon dioxide into the atmosphere.
• In November 2023, the Bureau of Energy Efficiency (BEE) released a draft outlining the protocol for a compliance mechanism within the framework of the Carbon Credit Trading Program in India. The Ministry of Environment, Forest, and Climate Change is poised to unveil greenhouse gas (GHG) emission intensity targets for obligated entities. These targets will be specified in terms of carbon dioxide equivalent (tCO2e) per unit of product for each defined trajectory cycle.
• In September 2023, CarbonClear, a data-driven carbon credit standard, announced its pivotal role in enabling Uber Mexico to acquire carbon credits from iluméxico through Apala Group. This groundbreaking transaction marks a substantial stride in corporate sustainability initiatives and the global campaign against climate change.

Investing in Tomorrow's Climate: Exploring the Future Market Drivers of Carbon Credits

The adoption of renewable energy, such as wind, solar, and hydropower, has resulted in a significant demand for carbon credits. These projects generate carbon credits by displacing the need for fossil fuel-based energy sources, and this is anticipated to contribute to the growth of the carbon credit market in the coming years. Moreover, carbon market platforms and trading mechanisms are among the financial models for carbon credits that provide easier access to these credits. This factor is expected to bolster the carbon credit market by attracting more participants, both buyers and sellers, in the forecasted period. Furthermore, increasing investments in carbon capture systems will also provide a favourable outlook for the market in the future.

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IMARC's Insightful Expertise

At IMARC Services Private Limited , we specialize in helping companies identify their competitors, business strategies, and approaches to players operating in the carbon market. We aim to identify targeted customers and suppliers within the carbon credit market and create robust marketing plans. We can provide information on competitors' innovations and government regulations and legislation. Additionally, we can assist companies in identifying the solutions best suited for their products. Industries can position themselves for long-term success and growth by aligning with sustainable approaches.

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