The Carbon Allowance Tale - Part 2: Adjustments towards a free market
New mechanisms helped the EU ETS become a more sophisticated scheme, driven by demand and supply.
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Compliance Carbon Markets
Compliance Carbon Markets
The trading unit is the carbon allowance, which represents the right to draw 1 ton of carbon from a capped carbon budget. In compliance markets, a regulatory entity fixes a certain amount (the cap) of allowed emissions for the year (the budget), and industrial polluters need to purchase allowances equivalent to their emissions. There are only as many allowances as the budget allows: the supply is capped. It is a regulated market in the sense that buyers have an obligation to hold allowances in equivalence to their emissions. Allowances are standard units issued by the regulatory body.
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