Written by: Dr. Kate Kwan, CPA(US), CGMA, FRM

What is carbon finance?

International carbon trading markets have been around since the 1997 Kyoto Protocols and have grown exponentially since then. What carbon markets achieve is to turn carbon emissions into a commodity by pricing it. Under a regulated cap on carbon emissions, permits or allowances are given or auctioned to carbon emitters. Projects that emit below their cap can trade their carbon credits (aka carbon allowances) to those who need additional capacity, thus creating a market for buying and selling carbon credits.

Types of carbon credits

The main difference between the above two markets is that the compliance market is mandatory, while the voluntary market is optional (voluntary). Both markets complement each other in the institutional (and personal) world. They also make the pool of buyers more accessible to farmers, ranchers and landowners — whose operations can generate carbon offsets for sale.

Market size


Source: Bloomberg

Individuals can be involved via third party companies

Bill Gates spends about US$5 billion per year to offset his family’s carbon footprint, as illustrated by Gates in his blog in February[2]. He invested in multiple companies that provide offsets. For individuals, you can buy credits from 3rd party companies that function as intermediaries, companies and programs that fund renewable energy projects or plant trees or even from farmers who capture methane emissions from livestock[3]. It is estimated that an average driver could cover his/her car’s carbon footprint for under US$100 per year. The cost of carbon offsets typically costs between US$2 to US$20 per metric ton of emissions removed, according to Bank of America’s research note published in September 2020[4]

It is becoming more and more important for governments, associations, companies and individuals to find ways to minimise carbon footprints and embark on an environmentally friendly lifestyle. Carbon offsets helps individuals to minimise their carbon footprint. The size of this market is growing tremendously. There is big potential for companies that produce carbon credits over the next decades til 2050, where companies want to meet the 2050 net-zero GHG goals.

Many organisations also provide carbon footprint calculator. One can use these calculators to estimate how many carbon offsets needed in order to become carbon neutral[5]

Source: https://www.carbonfootprint.com/calculator.aspx

For more information, feel free to contact ACH using these channels:

Company Website: https://www.ach-worldwide.com

Email: contact@ach-worldwide.com

LinkedIn: https://www.linkedin.com/company/achworldwide/