These markets are created by national, regional, or international regulations aimed at reducing greenhouse gas emissions. Entities are required to comply with emission reduction targets, often established through cap-and-trade systems.

• Cap-and-Trade Systems: Governments set a cap on total emissions for a specific sector or group of industries. Companies are allocated a certain number of allowances, which can be traded. Notable examples include:
  • European Union Emissions Trading System (EU ETS): One of the largest compliance markets, covering various sectors across EU member states.
  • California Cap-and-Trade Program: A regional program in the United States aimed at reducing greenhouse gas emissions.
• Regulated Offsets: These are credits generated from projects that reduce emissions outside of the capped sectors. They can be used by companies to meet compliance obligations.

In these markets, companies and individuals voluntarily purchase carbon credits to offset their emissions. This is often done for corporate social responsibility, branding, or sustainability goals.

• Verified Carbon Standard (VCS): A widely recognized standard for certifying voluntary carbon credits, ensuring projects meet rigorous criteria for emission reductions.
• Gold Standard: Focused on sustainable development, this standard certifies projects that not only reduce emissions but also deliver social and environmental benefits.
• Carbon Offset Projects: These can include reforestation, renewable energy projects, and energy efficiency initiatives that generate tradable credits.

Various regions and countries have developed their own carbon markets to address local emissions:

• Regional Greenhouse Gas Initiative (RGGI): A cooperative effort among several U.S. states to cap and reduce CO2 emissions from the power sector.
• British Columbia Carbon Tax: A tax applied to fossil fuels that generates revenue for the province, which can be used to invest in clean energy initiatives.

These markets facilitate cross-border trading of carbon credits, allowing countries to meet their climate commitments:

• Clean Development Mechanism (CDM): Established under the Kyoto Protocol, it allows developed countries to invest in emission-reducing projects in developing countries and receive credits in return.
• Joint Implementation (JI): Similar to the CDM, but involves projects between two developed countries.

As the global focus on climate change intensifies, new carbon markets are emerging, often focused on innovative approaches:

• Nature-Based Solutions (NbS): Markets that focus on conservation and restoration of ecosystems to sequester carbon, such as forest conservation and wetland restoration.
• Blockchain-based Carbon Markets: These aim to increase transparency and traceability in carbon credit trading, making it easier for participants to buy and sell credits.