Compliance carbon market
A market created by a legal system that requires regulated participants to meet emissions obligations.
Example
Some schemes allow trading of allowances and specified eligible credits.
The catch
Rules differ, and units from one market may not qualify in another.
In more depth
Compliance carbon market, explained.
A compliance carbon market has legal force behind it. Regulated companies must surrender a carbon allowance for each unit they emit, usually a tonne, and pay fines for any shortfall, so demand comes from obligation. The EU Emissions Trading System is the best-known example, and China, California and other jurisdictions run their own schemes.
The voluntary carbon market works differently, because buyers there choose to purchase credits for their own claims and prices follow different forces. A headline carbon price usually refers to a compliance market. Some compliance systems link with one another, as the EU and Swiss systems do, which lets allowances flow across the border.