As well as helping to mitigate our impact on the environment, carbon credits form a prudent investment. This article by Oliver Harris a senior analyst at Strategic Carbon Solutions provides an overview of everything you ought to know about carbon investments prior to entering the market.
The history of the carbon market
The carbon market was essentially conceived in 1997 as part of the Kyoto Protocol, under the stewardship of the UN. The goal was to address climate change via the creation of a global commodity market. In the subsequent years, this market has grown exponentially, luring investors from around the world, all of whom have been eager to capture their piece of the pie.
With 190 national signatories, the Kyoto Protocol formed a global agreement that aimed to monitor, mitigate and reverse climate change. It had long been recognised that greenhouse gases play a crucial role in controlling our atmosphere.
When the Kyoto Protocol was conceived, its focus was understandably on capping the emissions of the worst polluting nations. Working within a capitalist framework, it was accepted that the best way to incentivise developed nations to reduce their emissions would be via a system that included financial incentives for doing so.
Businesses are able to participate in approved projects that help achieve emissions reductions. These may take the form of certified projects such as reforestation or replacing carbon-intensive energy sources with hydro or wind-powered equivalents.
Each tonne of CO2 or similar greenhouse gas that is sequestered equates to one carbon credit, as awarded by the United Nations Framework Convention for Climate Change (UNFCCC). These credits can then be sold on like any other asset.