Carbon Markets

Carbon markets are systems through which carbon credits or emission allowances are traded to help meet greenhouse gas reduction targets.

Carbon credit: Generally represents one tonne of carbon dioxide equivalent (1 tCO₂e) reduced, avoided or removed, subject to the applicable programme's rules.
Emissions allowance: Permission to emit a specified quantity of greenhouse gases under a cap-and-trade system.
Compliance market: Trading occurs to meet legally binding or regulatory emission obligations.
Voluntary carbon market: Organisations or individuals purchase credits voluntarily, outside mandatory compliance requirements.
Cap-and-trade: A regulator establishes an emissions cap and issues or allocates allowances that can be traded.
Carbon tax: A government sets a price on emissions, generally through a tax per unit of emissions. Unlike cap-and-trade, it does not directly set an aggregate emissions cap.
Carbon offset: A credit associated with a reduction, avoidance or removal intended to compensate for emissions elsewhere.
Carbon sequestration projects: Forest restoration, soil carbon improvement and certain engineered carbon removal activities may generate credits under suitable methodologies.
Paris Agreement Article 6: Provides frameworks for international cooperation in achieving climate goals, including market-based approaches under Article 6.2 and the UN-supervised mechanism under Article 6.4.
India's Carbon Credit Trading Scheme (CCTS): Established under India's Energy Conservation Act framework, as amended, to develop a domestic carbon market.

One carbon credit commonly represents one tonne of CO₂ equivalent, but the exact rules depend on the relevant programme.
Article 6.2 allows cooperative approaches involving internationally transferred mitigation outcomes (ITMOs).
Article 6.4 establishes a UN-supervised crediting mechanism.
Article 6 accounting rules aim to prevent double counting, including through corresponding adjustments where required.
Carbon markets can lower the cost of emissions reductions, but their credibility depends on robust monitoring, reporting, verification, additionality and permanence.
Additionality means that the claimed emission reduction or removal would not have occurred in the relevant way without the project or intervention.
A carbon credit is not automatically equivalent to an allowance to emit under every regulatory system.

Q1. One carbon credit commonly represents:

Correct answer: 2) One tonne of carbon dioxide equivalent.

Explanation: A carbon credit commonly represents one tonne of CO₂e reduced, avoided or removed under the relevant programme's rules.

Q2. Which provision of the Paris Agreement deals with cooperative approaches involving internationally transferred mitigation outcomes?

Correct answer: 3) Article 6.2.

Explanation: Article 6.2 provides a framework for voluntary cooperation among parties, including the use of ITMOs toward climate targets.

Q3. What is the main purpose of additionality in carbon credit projects?

To ensure that credits are issued for reductions that would have happened anyway.
To establish that claimed reductions or removals go beyond the relevant baseline or business-as-usual scenario.
To increase the number of credits regardless of performance.
To eliminate the need for emissions monitoring.

Correct answer: 2) To establish that claimed reductions or removals go beyond the relevant baseline or business-as-usual scenario.

Explanation: Additionality helps distinguish genuine climate benefits from reductions that would have occurred without the credited intervention.