The History of Carbon Markets

As the impact of climate change has started to effect the world globally, many governments have begun trying to halt climate changes by limiting the amount of greenhouse gases (GHGs) that can be emitted by businesses. The term greenhouse gas refers to a group of gases that cause the Earth’s atmosphere to reflect and trap heat. Of the greenhouse gases, carbon dioxide is the largest in both emissions and concentration.

To address the problem of climate change, more than 160 nations developed a treaty in 1997 called the Kyoto Protocol. In the Kyoto Protocol, the developed nations (such as the United States, the United Kingdom, and Canada) agreed to limit their GHG emissions to below the levels emitted in 1990.

This established the first mention of carbon marketplaces and carbon trading of carbon offsets. The theory behind carbon trading is simple. It does not matter where a tonne of CO2 is reduced. What simply matters is that it is reduced. A buyer of carbon offsets would be an entity needing to reduce or offset emissions. The largest buyers of carbon offsets are likely to be the largest emitters, such power plants, transportation companies, and industry as a whole.