The Emissions Trading Market is estimated to be valued at US$ 334.80 billion in 2023 and is expected to exhibit a CAGR of 24% over the forecast period 2023-2030, as highlighted in a new report published by Coherent Market Insights.
The emissions trading market involves the trading of permits or allowances that grant the holder the right to emit a specific amount of greenhouse gases. The organizations covered under the emissions trading scheme are required to surrender enough emission allowances to cover their annual emissions. Failure to do so results in heavy penalties. The permits can be traded among participating organizations to meet compliance requirements in a cost-effective manner. The major greenhouse gases covered are carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulphur hexafluoride.
Rising global focus on reducing carbon footprint: Greenhouse gas emissions are a major contributor to climate change which poses severe threats to the environment and livelihood of people. Thus, significant efforts are being directed towards transitioning to cleaner sources of energy and implementing low carbon technologies across industries. Emissions trading provides a market-based cost-effective mechanism to achieve emission reduction targets, thereby driving its adoption.
Stringent regulatory policies pertaining to carbon emissions: Countries and regions across the world have introduced policies and regulations mandating emission reductions at the national and sectoral level. Trading allows participants to meet compliance requirements in the least cost manner. Non-compliance results in heavy penalties encouraging greater participation in emissions trading schemes.
The Emissions Trading market is dominated by the Carbon Credits sub-segment. Carbon credits are financial instruments that represent the right to emit one tonne of carbon dioxide or its equivalent of other greenhouse gases. They are issued by governmental and intergovernmental organizations to companies and other entities, and are used to comply with emissions reduction targets and policies such as cap-and-trade schemes. These credits can be traded in markets around the world, enabling emitters to meet their regulatory obligations while reducing overall greenhouse gas emissions at the lowest cost to societies and companies. The carbon credits sub-segment accounts for over 60% of the total emissions trading market owing to its widespread usage by companies and governments as a cost-effective compliance mechanism for achieving emissions targets.
Political: International climate agreements such as the Paris agreement have led to the establishment of national emissions targets and carbon pricing policies such as emissions trading schemes across many countries. Economic: The emissions trading market is highly dependent on macroeconomic factors like global GDP growth and energy demand. Economic incentives and penalties linked to emissions targets also significantly impact market dynamics. Social: Growing public awareness and concerns around climate change have increased societal and stakeholder pressure on governments and companies to achieve net zero emissions through market mechanisms. Technological: Advancements in renewable energy and clean technologies help reduce compliance costs in emissions trading, while digitalization aids transactions.
The global Emissions Trading Market Share is expected to witness high growth, exhibiting CAGR of 24% over the forecast period 2023-2030, due to increasing climate action commitments by governments worldwide under the Paris Agreement.
Regional analysis: The European carbon market is the largest and most established regional segment accounting for over 30% of the global market value currently. The emerging carbon markets in China and the US are expected to be the fastest growing regions over the coming decade as these countries scale up their climate policies through mandatory cap-and-trade regimes.
Key players: Key players operating in the Emissions Trading market include BP Plc, Royal Dutch Shell Plc, Total SE, Chevron Corporation, ExxonMobil Corporation, Engie SA, RWE AG, ON SE, Vattenfall AB, Gazprom, Mitsubishi UFJ Financial Group (MUFG), JPMorgan Chase & Co., Goldman Sachs Group, Inc., Citigroup Inc., Barclays PLC. These players are focusing on strategic collaborations and expanding their carbon offsetting and trading businesses.
1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it