World Economic Forum: Is carbon trading the next step towards decarbonisation?

Unlike voluntary offsets, where consumers can choose to pay to compensate for their carbon footprint, carbon trading is a legally binding scheme. Calculated by individual governments and policymakers, it aims to put a price on CO2 following the principle of caps and trade. The government sets a limit, or cap, on emissions permitted per industry. Emission certificates in the amount of this total quantity are placed on the market by auctioning them or allocating them to polluters. At the end of a predefined period, participating polluters must submit allowances equal to their emissions. They can buy or sell allowances on the market. Prices are regulated by markets, there isn’t a consensus on how to implement a cap-and-trade scheme globally.

This results in carbon prices that vary from less than $1 up to more than $140 for one ton of CO2 equivalent. In Germany, the price increased from €37 per ton in January 2021 to €88 per ton in January 2022 and it’s similar in other countries.

So, when it comes to carbon trading, working in silos within one’s own company borders is an issue. Many companies still try to do this on their own. While this may be possible with internal processes and those that companies have control over, it’s not an option in a global network of businesses. Lack of standards and varying regulations make these efforts slow and complicated, heavily impacting effectiveness.

To play a significant role in decarbonisation, networks, competition and services must be rethought. Handling data inconsistencies, mapping standards, connecting processes and supply chains end-to-end will be critical to its success.

Click to read this full article by the World Economic Forum.