What is a carbon market?

A carbon market is a voluntary or legally operated system to enable the trade of carbon credits between private and public entities.

The first carbon market was defined by the Kyoto Protocol which created three market mechanisms to achieve these emissions reductions: the International Emissions Trading (IET), the Joint Implementation, and the Clean Development Mechanism (see Clean Development Mechanism).

The goal of a carbon market is to create an economic incentive for companies to reduce their emissions, as they can sell any unused emissions allowances to other companies that need them. Carbon markets can take many forms, such as cap-and-trade systems or carbon taxes, but the basic principle is the same: to use the power of the market to reduce greenhouse gas emissions and mitigate the effects of climate change.

The carbon market's goal is to create a carbon price and transform carbon into a valuable commodity, incentivising emitters to use this resource cautiously and even as a revenue generating activity in some cases.