A carbon credit is a tradable certificate that represents one metric ton of reduced, avoided or removed greenhouse gas (GHG) emissions. Currently, there are two major carbon markets: a regulatory market driven by “cap-and-trade” regulations at the state and regional levels, and a voluntary market where businesses and individuals buy credits of their own accord to offset their GHG emissions.

Carbon credits can be created from a variety of activities, with forestry projects and renewable energy being the fastest growing categories. Forestry credits are often generated through reforestation, and renewables such as wind turbines, biomass power plants and hydroelectric dams can also generate carbon credits.

Other types include natural methods such as wetlands planting and soil sequestration, and technology-based reductions like carbon capture and storage (CCS) or waste to energy projects. The price of a carbon credit depends on a number of different attributes. Some of the most significant are its type, location, vintage – the year in which it was issued – and delivery date. A credit’s additional ‘co-benefits’ – such as helping to meet the UN’s Sustainable Development Goals (SDG) – are also important to buyers, but these do not influence its pricing as much as the basic credit itself.

Today’s carbon market has a complex set of buyers and sellers. The largest buyers are the companies – or sometimes even individual consumers – that have pledged to offset part or all of their GHG emissions. These deals make up the bulk of volume traded on CBL, and are usually made through brokers.

The carbon market also has a large number of investors and other financial players that are not committed to buying or selling any specific carbon credits, but seek exposure to the sector. Finally, the smallest sellers are the projects themselves that sell credits to the market. The projects can be anything from reforestation to a technology-based GHG removal project, and are generally sold through a third-party seller.

For the vast majority of carbon.credit traded in today’s marketplace, a standard is used to determine the legitimacy of the credit’s underlying activity. These standards are typically set by organizations, such as NGOs, that specialize in evaluating particular types of projects. For example, reforestation projects are evaluated to ensure they are carrying out the envisioned amount of CO2 absorption per hectare.

A credit with a standard is considered to be a high-quality credit and can be sold at a premium over other types of credits. For this reason, Platts publishes price indications for a wide range of carbon credit categories as they are traded in the broader voluntary market and not just as part of the CORSIA scheme, in an effort to increase transparency. Platts’ price assessments are based on bids, offers and trades reported on our CBL platform. These assessments are a key component of our Platts Carbon Tracker service, which provides clients with a tool to track and analyze the GHG market. Platts also provides analysis of the pricing dynamics in the various sub-markets.