Carbon Markets
Carbon Markets are an important step on the journey to deliver on global net zero commitments. S&P Global brings transparency to nascent carbon markets with offerings covering market infrastructure, price assessments for indexation and benchmarking, as well as analytics data and insight.
What are Carbon Markets?
Carbon Markets help to facilitate progress on global net zero commitments by enabling market participants to trade carbon allowances and carbon offsets via compliance and voluntary carbon markets. Carbon markets are expected to grow rapidly in the short term creating market opportunities and mobilizing investment, and diminish in the longer term as countries close in on net zero emissions.
What are Carbon Allowances?
Carbon Allowances are used in compliance carbon markets where government organizations or regulatory authorities provide regulated companies a certain number of carbon allowances every year, allowing them to emit one tonne of CO2 per credit. Market participants, often including both emitters and financial intermediaries, can trade allowances to meet regulatory requirements (or for hedging or trading purposes). In the case of cap-and-trade programs, called Emissions Trading Systems (ETS), the limit on carbon emissions (i.e., the cap) slowly decreases over time.
What are Carbon Offsets?
Carbon Offsets, traditionally used in voluntary carbon markets, enable companies (and individuals) to offset their carbon emissions by buying offsets that either reduce emissions (e.g. renewable energy) or remove emissions (e.g. reforestation). Carbon offsets have also been used in compliance carbon markets to satisfy a portion of cap-and-trade requirements.
Benefits of Carbon Markets
Carbon markets play a crucial role in reducing greenhouse gas emissions by providing a mechanism for companies to offset their carbon footprint. By purchasing carbon credits, businesses can invest in projects that reduce or remove greenhouse gas emissions, such as renewable energy projects or reforestation initiatives. This promotes the development and adoption of clean technologies and sustainable practices, leading to a more environmentally friendly economy. Additionally, participating in carbon markets can provide financial incentives and opportunities for businesses. Companies can generate revenue by selling excess carbon credits or by developing innovative solutions to reduce emissions. This not only helps businesses meet their environmental goals but also contributes to their bottom line. Overall, carbon markets create a win-win situation by addressing climate change, promoting sustainability, and offering financial benefits to businesses.
Compliance vs Voluntary Carbon Markets: What's the difference?
The compliance carbon market refers to a market where companies are required to meet specific emission reduction targets set by regulatory authorities. These targets are often legally binding, and companies must purchase carbon credits to offset their emissions and comply with regulations. On the other hand, the voluntary carbon market is driven by organizations and individuals who voluntarily choose to offset their emissions by purchasing carbon credits. These credits are not mandated by regulations but are used to demonstrate environmental responsibility and sustainability. Both markets involve the buying and selling of carbon credits, but the key difference lies in the regulatory requirements and obligations.
Get ready for significant growth in carbon markets
While nascent today, carbon markets are projected to grow significantly providing important pathways for countries, corporates, and financial institutions to turn net zero commitments into net zero action plans.
Find out how we are bringing transparency to the nascent carbon markets with infrastructure, price assessments, index benchmarks, and data and insight.
Our Approach
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Infrastructure
Discover Integrated Infrastructure Solutions for Carbon Market
Environmental Registry
Manage carbon, water and biodiversity credits in a centralized, financial markets-based registry system, helping to increase transparency, efficiency and scalability.
Meta Registry®
Seamlessly connect disparate markets and registry systems around the world, enabling the exchange of carbon market data and mitigating the risk of double-counting credits.
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Price Assessments
Our carbon market price assessments offer essential price transparency
Carbon Allowance Price Assessments
Mandatory carbon market price assessments include evaluations of over-the-counter forward prices for December European Union Allowances (EUAs) and United Kingdom Allowances (UKAs), which are financial instruments used in these two carbon trading schemes.
Low Carbon Fuel Standard (LCFS)
These daily assessments evaluate carbon credits being purchased by producers of petroleum and diesel from producers of ethanol, bio diesel, hydrogen and electric charging to meet their deficit shortcomings.
California Offsets and Allowances
These look at physically delivered greenhouse gas emissions offset credits that are limited to emissions-reduction projects in the U.S. and specifically to five areas: forestry, urban forestry, destruction of ozone-depleting substances and mine methane capture.
Regional Greenhouse Gas Initiative (RGGI)
These look at the cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont and Virginia to cap and reduce CO2 emissions from the power sector.
Voluntary Carbon Market
These assessments cover a full range of projects that reflect bids, offers and trades as reported in either the Commodity Insights Market on Close assessment process, the brokered market or on trading and exchange instruments. The assessments reflect the individual attributes of particular projects and are segmented into avoidance and removal credits. Additional assessments are available for the International Civil Aviation Organization’s CORSIA program, plus the most competitive methane collection carbon credits.
Carbon Credit Settlements and Assessments
S&P Global Commodity Insight’s partnership with the Xpansiv spot-market exchange provides assessments of the daily and monthly settlement prices for Xpansiv’s carbon credit contracts, as well as the settlement prices for physically-delivered futures contracts.
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Indices
Our carbon market indices are designed to inform price discovery and increase liquidity
The Global Carbon Index
IHS Markit, now part of S&P Global, together with Climate Finance Partners (CLIFI), launched this first-of-its-kind index that tracks the most liquid segment of the tradable carbon credit futures markets. Constituents of the index include futures contracts on European Union Allowances (EUA), UK Allowances (UKA), California Carbon Allowances (CCA) and the Regional Greenhouse Gas Initiative (RGGI), with pricing data from OPIS by IHS Markit Pricing (North American Pricing) and ICE Futures Pricing (European Pricing). The Global Carbon Index rules-based methodology is publicly disclosed and designed to be replicable.
The S&P GSCI Global Voluntary Carbon Liquidity Weighted
The S&P GSCI Global Voluntary Carbon Liquidity Weighted is designed to reflect the performance of the global voluntary carbon credit market. Index constituents are liquidity-weighted tradeable voluntary carbon credit futures contracts.
The S&P GSCI Carbon Emission Allowances
The S&P GSCI Carbon Emission Allowances (EUA) is designed to measure the performance of the European Union Carbon Emission Allowances (EUA) market.
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Data and Insights
Our data and insights uncover the details behind the carbon market trends
ESG Insights
Get the latest news coming out of global mandatory and voluntary carbon markets, including specific details on the short-, medium- and long-term outlooks for the mandatory carbon markets in each region.
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S&P Global Trucost Carbon Earnings at Risk Dataset
Quantify company-level exposure to current and future carbon pricing scenarios.
Discover Integrated Infrastructure Solutions for Carbon Market
Environmental Registry
Manage carbon, water and biodiversity credits in a centralized, financial markets-based registry system, helping to increase transparency, efficiency and scalability.
Meta Registry®
Seamlessly connect disparate markets and registry systems around the world, enabling the exchange of carbon market data and mitigating the risk of double-counting credits.
Challenges and Future of Carbon Markets
The challenges faced by carbon markets include ensuring transparency and integrity in the trading of carbon credits. It is important to establish robust monitoring, reporting, and verification mechanisms to prevent fraud and ensure that emission reductions are accurately measured and accounted for. Another challenge is addressing market fluctuations and price volatility, as carbon credits can be subject to changing market conditions and investor sentiment. To overcome these challenges, there is a need for standardized regulations and frameworks that provide stability and confidence in the market. Looking towards the future, carbon markets have the potential for significant growth. As more countries and companies commit to reducing their carbon emissions, the demand for carbon credits is expected to increase. Additionally, emerging trends such as the expansion of carbon pricing mechanisms and the integration of carbon markets with other sustainability initiatives can further drive the growth and effectiveness of carbon markets.
Carbon Market Case Studies
Explore our case study collection to learn how our clients have tackled their most pressing ESG issues using S&P Global's essential intelligence data sets.
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