An overview of carbon markets 

While private and public sector initiatives to reduce emissions have made progress, current climate actions and policies put the planet on a path to well above 2°C of warming by the end of the century^[1] breaching the goals of the Paris Agreement.

Part of the problem is not putting an economic cost on emissions to create appropriate considerations for negative externalities in economic growth.  The true costs of emissions are not reflected in economic activities, which has led to unintended consequences in the form of environmental degradation. 

The purpose of carbon markets is to help reduce emissions by trading carbon credits and putting a direct price on carbon. There are two types of carbon markets — compliance carbon markets (CCMs), also known as Emissions Trading Systems (ETS), which trade carbon permits/allowances for compliance with regulatory emissions limits, and voluntary carbon markets (VCMs), which trade carbon credits used to voluntarily offset emissions.

Ultimately, carbon markets exist to price the cost of carbon to the economy, to incentivize emissions-intensive industries to decarbonize and/or finance solutions to support climate goals. The verdict is still out on whether the markets have been effective in achieving these goals.