Carbon Credits
Carbon credits put a price on greenhouse gas emissions. Some trade in government-run markets; others are sold voluntarily by projects. Here is how the two markets differ and the risks investors face.
Two different markets
| Compliance markets | Voluntary markets | |
|---|---|---|
| Who creates them | Governments set a cap on emissions | Projects that claim to reduce or remove emissions |
| Who buys | Companies required to cover their emissions | Companies and people offsetting voluntarily |
| Examples | The EU and California cap-and-trade systems | Forest protection, clean cookstoves, carbon removal |
| Price drivers | Cap levels, policy changes, economic activity | Project quality, buyer demand, reputation |
General features; each program has its own rules.
Unlock all of Investing School
The rest of this lesson, its chart examples and quiz are part of Investing School. Start free with Stock Market Fundamentals and the first lesson in every category.