An Effective Tool for Net Zero
This report highlights that global carbon markets (GCMs), crucial for achieving net-zero emissions, are market-driven tools to efficiently price carbon and manage emissions. Investors must understand the role that GCMs can play in investment strategies, including impact investing and to exploit trading opportunities as these markets evolve.
The Paris Agreement and the widely adopted goal to meet net-zero greenhouse gas emissions have fostered global consensus on tackling climate change, with carbon pricing playing a crucial role. As a market-driven carbon pricing method, global carbon markets (GCMs) are an effective tool to determine carbon pricing and support the net-zero goal.
This CFA Institute Research and Policy Center report, “An Effective Tool for Net Zero: A Foundational Overview of Global Carbon Markets,” provides a comprehensive overview of GCMs and their vital role in supporting the global goal of achieving net-zero greenhouse gas emissions. GCMs are still evolving; although they all utilize cap-and-trade mechanisms at their core, they are geographically fragmented and vary in scope and design.
GCMs include both compliance carbon markets (CCMs) and voluntary carbon markets (VCMs). They are market-driven mechanisms designed to set a price on carbon emissions. This pricing is crucial for incentivizing reductions in greenhouse gas emissions and for fostering the wider growth of green technologies and finance. Our report emphasizes the necessity for investors to understand GCMs, not only because of the extent to which carbon pricing influences corporate activity, profitability and transition planning, but also because of the financial opportunities carbon allowances and credits present as these markets expand.
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