How does the carbon market work ?
The Emissions Trading Scheme is one of the actions introduced by institutions with the aim of significantly reducing greenhouse gas (GHG) emissions. This is what initiated the carbon market. The strategy is as follows: institutions set decreasing degressive GHG emission allowance caps for polluting companies. An allowance represents the right to emit one tonne of CO2. A company that pollutes more than it is entitled to must buy additional allowances to compensate for its excess GHG emissions. On the other hand, a company that absorbs CO2 produces allowances that it can sell on the carbon market.
What are the opportunities and limitation of the carbon market as it stands
The obvious opportunity of this market is to create an economy that moves towards a more sustainable system. However, putting a price on carbon can have a paradoxical effect. Heterogeneity between different countries' legislations causes a stifling effect on the reduction of GHG emissions. Added to this is the regulation and control of this market, which is still evolving. The creation of allowances, the measurement and trading system, as well as their destruction, must be an end-to-end traceable and transparent process in order to avoid any pitfalls (especially at the sensitive points, marked by a red cross).
How to ensure a virtuous carbon market ?
Transparency, integrity, and efficiency are the keywords for a virtuous carbon market. The digitization of the allowance supply chain from the point of origin to the point of consumption through robotic process automation and anchoring technologies could provide leverages to accelerate the rise of the economy of impact. Allowances can be traced throughout the chain to avoid duplication or fraud. The collection and exploitation of data will make the impact more measurable and therefore more concrete.
