What is Trade Carbon Credit?
Trade carbon credit refers to a market where businesses or individuals can offset their emissions. It is a vital part of the global fight against climate change, and can help companies or organizations meet their emission reduction targets set by governments.

The voluntary trade carbon credits market is a rapidly growing source of supply, although it faces many challenges. One is the high degree of heterogeneity in the type and quality of credits being traded. This has led to a lack of price signals and potential for fraud or money laundering. Moreover, the diverse nature of the carbon market makes it difficult to build credibility and trust among participants.

Fortunately, several institutions and standard-setting bodies are taking steps to address the challenges. They are creating standard products for credits that have certain characteristics, and they are also establishing a more uniform trading platform to support the voluntary market.

These standards are designed to reduce the number of factors affecting a credit's price, which is currently very complex. They include a project's type, the year it was certified, the quality criteria that the certification body sets, and the type of standard that the certification body uses. Platts and other exchanges are also working to simplify the trade of credits by developing standardized products for forward delivery, or those that must be delivered in the future.

A robust, effective voluntary market would make it easier for buyers to find reputable sources of credits and complete transactions efficiently. This could lower the cost of sourcing credits, shorten payment terms for project developers, accelerate issuance, and increase the liquidity of these assets.

In addition, a well-functioning voluntary carbon market could transmit signals of buyer demand to sellers, which in turn would increase the supply of credits. Such a market should have resilient and scalable infrastructure, support post-trade activities (on-exchange or over the counter), offer counterparty default protection, and provide advanced data services.

Another important step in strengthening the integrity of the voluntary carbon market is to establish a digital process for registration and verification. This could speed up issuance, increase the liquidity of credits, and improve the credibility of corporate claims about the use of offsets.

This digital process for verifying projects and approving credits would also create a better match between buyers and suppliers by describing all carbon credits through a common set of features, such as quality criteria. This taxonomy could also cover the additional attributes of a credit, such as its country of origin or the amount of carbon removed or avoided from the atmosphere.

These features could be linked to the core carbon principles that all credits must adhere to, and these would form a basis for verifying that a credit represents genuine reductions in carbon dioxide emissions.

This will not only ensure that carbon credits represent actual emissions reductions, but it will also make it more difficult for fraudulent entities to buy and sell credit in the voluntary carbon market, reducing the risk of money laundering and preventing false or deceptive claims by project developers. These corrective measures are needed to scale up the voluntary carbon market to achieve its full potential.