How Emission Allowances Are Calculated in the Carbon Market | CBCGDF Climate Change Working Group

In the carbon market, the calculation of emission allowances is a complex but fundamental process.

The calculation usually starts with an assessment of a particular industry or entity's historical emissions. Data on past greenhouse gas emissions, including carbon dioxide, methane, and nitrous oxide, over a specific period, say the past five to ten years, is collected. This historical data serves as a baseline.

 

Next, factors such as industry growth projections and technological advancements are considered. If an industry is expected to grow significantly in the future, a certain adjustment may be made to the allowances to account for the potential increase in emissions. At the same time, if new technologies are likely to reduce emissions, the allowances might be set at a lower level to encourage their adoption.

 

Regulatory targets also play a major role. Governments or regulatory bodies set overall emission reduction goals. Based on these targets, the total number of emission allowances available in the market is determined. Then, this total is allocated among different sectors and individual entities. The calculation aims to strike a balance between allowing economic activities and promoting emission reduction, driving industries towards a low-carbon future within the framework of the carbon market mechanism.

 

Translator: Richard

Checked by Maggie

Editor: Richard

Contact: v10@cbcgdf.org; +8617319454776


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