Emissions trading, also known as cap-and-trade, is a market-based approach to controlling greenhouse gas emissions. It operates under the premise of setting a cap on the total allowable emissions from specific industries or regions. Companies are allocated emission allowances corresponding to their permitted emission levels. If a company emits below its allotted amount, it can sell the surplus allowances to other companies exceeding their emissions limits. This system incentivizes emissions reductions as companies strive to maintain compliance while providing flexibility in achieving emission targets. Emissions trading has gained prominence globally as a crucial tool in addressing climate change, fostering cooperation among industries, and encouraging investment in cleaner technologies.
The emissions trading market has witnessed significant growth in recent years, spurred by mounting environmental concerns and international efforts to combat climate change. Various regions, including the European Union, China, and parts of the U.S., have implemented emissions trading systems to regulate greenhouse gas emissions effectively. Additionally, the voluntary carbon market has emerged, enabling businesses and individuals to offset their carbon footprint voluntarily. As more countries and companies commit to reducing their carbon emissions, the emissions trading market is likely to continue expanding, playing a vital role in the global transition towards a more sustainable and climate-conscious future.
The European Union Emissions Trading System (EU ETS) is the largest carbon market in the world, accounting for around 90% of global carbon credit trading volume. The EU ETS is expected to continue to grow in the coming years, as the European Union commits to reducing its greenhouse gas emissions by 55% by 2030.
Market Dynamics:
Environmental concerns and climate change mitigation, regulatory compliance and international commitments are anticipated to drive growth of the global emissions trading market over the forecast period. Moreover, economic efficiency and cost-effectiveness, stimulating clean technologies and innovation is also expected to boost the growth of the emissions trading market over the forecast period. Expansion of emissions trading schemes, linking emissions trading systems, inclusion of new greenhouse gases, and market-based solutions for net-zero goals are expected to create growth opportunities for the emissions trading market during the forecast period.
However, political and policy uncertainty, insufficient stringency, market manipulation and price volatility are expected to hamper growth of the emissions trading market over the forecast period.
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