Over the last few years, carbon markets have become one of the main tools in the fight against climate change. They allow greenhouse gas emissions to be managed through mechanisms that can be either mandatory or voluntary. But how exactly is this system organised, and how does it work? Carbon markets are an important tool in the fight against climate change. They allow greenhouse gas emissions to be managed through economic mechanisms, incentivising their members to reduce their carbon footprint. There are two types of carbon markets: regulated and voluntary. The year 2022 marked the active development of carbon markets around the world. Many countries have stepped up their efforts to reduce greenhouse gas emissions by implementing regulated and voluntary carbon trading systems. The EU continues to play a leading role in global carbon regulation, China has launched the world's largest national emissions trading system, and Kazakhstan is strengthening its position within the Eurasian Economic Union with its own ETS. In Russia, the so-called ‘Sakhalin experiment’ - the first regional emissions trading system in Russia (according to the Federal Law No. 34-FZ dated 06.03.2022) - will officially start on 1 September. SBS Consulting experts have prepared an analytical paper on carbon markets to mark this event. The paper analyses in detail the key initiatives, the functioning of the markets and the prospects for their development, which makes it possible to assess their impact on global climate goals.

Regulated carbon markets (EU, China and Kazakhstan case studies)

Regulated carbon markets are the basis for emission control within the framework of government policies. The regulated market is under the control of public authorities, which set emission allowances and monitor compliance with them.

Regulated carbon markets are becoming an increasingly important tool in the global fight against climate change. The main mechanism is the Emissions Trading System (ETS), which allows governments and companies to manage greenhouse gas emissions. Companies must adhere to these allowances or purchase additional ones if their emissions exceed the limits.

By the end of 2021, 25 such systems were in place worldwide, covering 17% of global greenhouse gas emissions. In addition, seven more systems were under development and 13 were under discussion. These systems cover key sectors such as energy, industry, transport, aviation, buildings and forestry. The main difference lies in the methods of allocating allowances and regulating the price of emissions.

The European Union (EU) has established one of the most developed emissions trading systems. This system covers a significant portion of the region's greenhouse gas emissions and is a model for other countries. The EU is actively expanding the coverage of its system to new sectors, which contributes to even greater emission reductions.

China has recently launched its national emissions trading system, which immediately became the largest in the world. The Chinese system targets the largest sectors of the economy and aims to reduce carbon emissions on a large scale, actively adapting to the peculiarities of its economy.

Kazakhstan has also introduced its own cap-and-trade system, becoming the only country in the Eurasian Economic Union with such an approach. This system covers key sectors of the country's economy, and although Kazakhstan's allowance market remains relatively small, it continues to play an important role in emissions management.

Voluntary carbon markets

A voluntary market provides more freedom and allows companies to choose their own projects to reduce emissions by purchasing certificates that validate their environmental efforts.

Voluntary carbon markets give companies and organisations the opportunity to offset their greenhouse gas emissions by buying carbon credits. This is a special marketplace where individuals, corporations and other entities can buy and sell carbon credits, which represent a unit of greenhouse gas emission reduction or removal. Unlike regulated markets, voluntary carbon markets operate without mandatory government allowances and regulation.

Project developers, such as public and private companies, non-profit organisations and local governments, initiate projects to reduce emissions or remove carbon dioxide from the atmosphere. These projects are certified and verified to issue carbon credits that can be offered in the market.

Most carbon units in voluntary markets are issued according to international standards, but there are also those that meet national requirements. Carbon credits are traded either directly or through specialised exchanges such as AirCarbon Exchange (Singapore) and Xpansiv market CBL (USA).

The ultimate buyers of carbon credits are often companies seeking to offset their emissions as part of corporate social responsibility or to improve their image.

The voluntary carbon market shows strong growth, but not all issued carbon credits find their buyers. Although annual issuance of carbon units is increasing by 24%, only about 30% of these units are redeemed in the market. More than half of all redeemed carbon units account for forestry and land use projects.

The leader in terms of carbon credit issuance is Asia, where the price per unit of carbon credits is the lowest, being about one dollar per tonne of CO2 equivalent. At the same time, Oceania has the highest price per carbon unit, reaching $19.

Carbon markets in Russia (Sakhalin experiment and national market)

Russia is preparing to launch two new carbon markets that will become important elements in the fight against climate change. In September 2022, a pilot greenhouse gas emissions trading project will begin in the Sakhalin region. This experiment will be the first step towards a national system of emissions regulation and will show how such markets can work in the Russian context. The project will target companies with large emissions and establish strict rules for distributing allowances, enabling companies to adapt to the new conditions or face consequences for non-compliance.

In parallel with the Sakhalin project, Russia is preparing to launch a national voluntary market for carbon units. This market will provide companies with the opportunity to offset their emissions by participating in climate projects and purchasing carbon credits. The introduction of this market marks a major strengthening of the country's climate policy to achieve carbon neutrality and uphold international climate commitments. These steps emphasise Russia's readiness to take an active position in the global fight against climate change, offering domestic companies new opportunities for sustainable development.

Carbon markets are thus becoming a key tool in the global fight against climate change. Regulated markets, such as in the EU, China, and Kazakhstan, demonstrate the effectiveness of cap-and-trade systems, covering a significant share of global emissions and incentivising the reduction of carbon footprints. At the same time, voluntary carbon markets offer companies the opportunity to offset emissions through the purchase of carbon credits, which favours the development of forestry projects and other sustainable initiatives.

Russia, for its part, is taking a significant step forward by launching a pilot project in Sakhalin and a national voluntary market for carbon units. These initiatives emphasise the importance of carbon markets for the country and demonstrate Russia's willingness to participate in global climate processes. Overall, the development of carbon markets is a pathway to a more sustainable future in which the balance between economic growth and environmental responsibility becomes a reality.