Carbon markets are booming. Here’s how to ensure they work

(Reuters, 29 Nov 2021) As companies and governments move toward net-zero emissions goals, demand for offsets will soar - but they need integrity to work.

Ann Florini is a professor at the Thunderbird School of Global Management at Arizona State University and Gordon LaForge is a Finance for Biodiversity (F4B) associate.

With negotiators at Glasgow agreeing to a set of rules for international carbon trading under the Paris Agreement’s Article 6, carbon markets have reached a watershed moment.

Carbon prices in Europe are at a record high. Enthusiasts like Mark Carney proclaim emissions trading can unlock hundreds of billions in investment and remove gigatons of CO2 from the atmosphere.

But these are a new kind of market, and typical financial governance will not guarantee they work. Their success or failure depends on the degree to which they have one thing at their core: integrity.

Carbon markets allow a company or country to either trade units that represent permitted emissions or credits generated from projects that reduce or remove greenhouse gas emissions elsewhere, such as direct carbon capture or reforestation.

Unlike most markets, which provide private goods aligned with the interests of transactors, carbon markets exist solely to serve the public goal of mitigating climate change. 

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Reuters, 29 Nov 2021: Carbon markets are booming. Here’s how to ensure they work