🌐Carbon Markets

About Carbon Markets

The objective of carbon markets is to reduce greenhouse gas (GHG, or “carbon”) emissions cost-effectively by setting limits on emissions and enabling the trading of emission units, which are financial instruments representing emission reductions. Trading enables entities that can reduce emissions at a lower cost to be paid to do so by higher-cost emitters, thus lowering the economic cost of reducing emissions.

There are two types of carbon markets: compliance and voluntary. The compliance markets are governed by public policy in individual and/or multiple countries, e.g. the European Emissions Trading System (ETS).

The voluntary carbon market (VCM) is international and governed by standards institutions that set certification criteria, as well as organizations that regularly publish best-practice and monitor the market. The International Carbon Reduction & Offset Alliance (ICROA), is a non-governmental organization that has played a key role in the VCM over the past two decades. Additionally, organizations which develop standards and certification schemes such as Verra and Gold Standard are critical for onboarding the supply of carbon offsets into the VCM.

Carbon Standards

Carbon standards govern the methodologies which define how credits are created and verified. Every carbon project needs to follow these methodologies to show that it meets the minimum quality criteria. Once a project’s impact has been verified, standards bodies issue carbon credits to the project. Carbon standards play a key role in ensuring carbon credit quality, integrity, and impact.

Currently, Verra and Gold Standard are the two most trusted entities setting carbon standards. Smaller standards bodies issue less than a quarter of the voluntary market carbon credits each year.

Carbon Credit Registries

The carbon markets are facilitated by carbon registries, which are off-chain ledgers that host lists of projects that have been issued carbon credits. Each standard body maintains its own carbon registry which runs on a centralized database. Such systems track ownership and when a credit is retired, this is shown in the registry.

In theory, carbon markets are non-existent without registries. While this demonstrates the importance of registries, it is important to note that off-chain registries suffer from the following:

• Lack of Accessibility and Inclusivity: limited access to registries through brokerage, trading, and registry accounts - often granted to corporate entities at increasingly high fees. Individuals are not granted direct access to said registries.

• Lack of Innovation: minimal efforts to attain the growing demand for open-source infrastructure to host carbon markets

• Lack of Transparency: obscure practices and means of conducting the carbon markets

This is where the Carbovalent Protocol comes in! Our infrastructure allows us to onboard credits from various centralized registries onto our on-registry. This will allow anyone to participate in the carbon markets, welcoming developers and other builders to explore brand-new use cases for carbon.