The History of Carbon Credit Exchanges: From Kyoto Protocol to Today
Kyoto Protocol: The Birth of Carbon Credit Trading
The concept of carbon credit trading emerged as a response to the rising levels of greenhouse gas emissions and their contribution to climate change. The Kyoto Protocol, adopted in 1997, was the first international treaty to address global warming. The Protocol committed countries to reduce their greenhouse gas emissions and established three mechanisms to achieve this goal: emissions trading, clean development mechanism, and joint implementation. Emissions trading, also known as carbon trading, allows countries to buy and sell emissions allowances, creating a market-based system to reduce emissions.
The Emergence of Carbon Credit Exchanges
Carbon credit exchanges started to emerge in the early 2000s as a platform for buyers and sellers to trade emissions allowances. The first exchange to launch was the European Climate Exchange (ECX) in 2005, which became the world’s largest carbon credit exchange. ECX offered spot and futures trading for European Union Allowances (EUAs) and Certified Emission Reductions (CERs) under the Kyoto Protocol. The exchange was acquired by Intercontinental Exchange (ICE) in 2010 and merged with ICE Futures Europe.
Other exchanges soon followed, including the Chicago Climate Exchange (CCX) in 2003, which was the first U.S.-based exchange for carbon credits. CCX focused on voluntary emissions reductions and offered a platform for companies and organizations to offset their emissions by purchasing carbon credits. However, CCX closed in 2010 due to low trading volumes and lack of regulatory support.
The Clean Development Mechanism (CDM) also created a market for carbon credits by allowing companies in developed countries to invest in emission reduction projects in developing countries and earn CERs. The CDM Executive Board registered projects and issued CERs, which could be traded on carbon credit exchanges.
Carbon Credit Exchanges Today
Today, there are several active carbon credit exchanges around the world, including ICE Futures Europe, EEX, and CBL. These exchanges offer trading in various carbon credits, including EUAs, CERs, and Verified Carbon Units (VCUs). Carbon credit trading has also expanded beyond the Kyoto Protocol and into voluntary markets, where companies and organizations can purchase credits to offset their emissions.
The Paris Agreement, adopted in 2015, expanded the scope of carbon trading by allowing countries to use international carbon markets to achieve their emission reduction targets. The Agreement established a new mechanism called the Sustainable Development Mechanism (SDM), which will replace the CDM and allow for the transfer of emission reductions between countries. The SDM is expected to create a larger and more liquid market for carbon credits.
In conclusion, carbon credit exchanges started to emerge in the early 2000s as a response to the Kyoto Protocol and the need to reduce greenhouse gas emissions. The first exchange, ECX, launched in 2005 and was followed by other exchanges around the world. Carbon credit trading has expanded beyond the Kyoto Protocol and into voluntary markets, and the Paris Agreement has further expanded the scope of carbon trading through the SDM. Today, carbon credit exchanges play a vital role in reducing greenhouse gas emissions and mitigating the impacts of climate change.