Compliance Markets are where the buying andselling of credits occur in industries regulated by emission trading systems(ETS) in regions where it is required by law to offset carbon emissions usingcarbon credits. Transactions in the Compliance Markets totalled approximatelyUS$261 billion in 2020. The Voluntary Markets pertain to companies orindividuals that offset their carbon footprint without non-compliance fines or reserve pricing.

Increased Global Focus On Decarbonisation

The Race to Zero Campaign spearheaded by theUnited Nations is a global coalition of thousands of businesses and hundreds ofcities that have committed to being net-zero by 2050. The members of thecampaign combined cover almost 25% of global CO2 emissions and over 50% ofglobal GDP.

Governments, NGOs, consumers, regulators,shareholders, consumers and even employees are pressuring companies todecarbonise. The Net Zero Asset Managers Initiative, for example, comprises aninternational group of asset managers that are focused on investments that aimto reach net-zero greenhouse gas emissions by 2050 or sooner. 128 assetmanagement companies with control of a combined US$43 trillion in assets havesigned up as of now, including BlackRock and Vanguard.

Challenges to Decarbonisation

With the increase of companies working onnet-zero pledges, the realities of decarbonisation at the company level arebecoming a lot more pressing.

The initial step of the process is tocalculate the company’s carbon footprint in great detail. Phases of planningand implementing changes at an operational and supply chain level can then takeplace with the aim of reducing carbon footprints.

With technologies and efficiencies alone, itis difficult for many companies to reduce their carbon emissions. New and evennext-generation technologies would be needed in industries like mining,construction and refining for carbon emission reductions to actually takeplace. The voluntary markets could play a key role in these industries inachieving net-zero goals.

Next steps

It is extremely important that companies takeaccountability for their carbon emissions and look to the voluntary markets tooffset these emissions. The voluntary markets are funding projects thatsequester carbon and prevent further carbon from being released. These marketsare also at the forefront of innovation for emerging climate technologies.