Five main players make up the engine of carbon markets.

PROJECT DEVELOPERS 

Project developers represent the upstream part of the market. They set up the projects issuing carbon credits, which can range from large-scale, industrial-style projects like a high-volume hydro plant, to smaller community-based ones like clean cookstoves. 

END BUYERS 

The downstream market is made up of end buyers: companies, organiztions – or individual consumers – that have committed to offset part or all of their GHG emissions. 

RETAIL TRADERS 

To link supply and demand, there are brokers and retail traders, just as in other commodity markets. Retail traders purchase large amounts of credits directly from the supplier, bundle those credits into portfolios, ranging from hundreds to thousands of equivalent tons of CO2, and sell those bundles to the end buyers, typically with some commission. 

BROKERS 

Brokers buy carbon credits from a retailer trader and market them to an end buyer, usually with some commission. 

STANDARDS 

There is a fifth player unique to carbon markets. Standards are organizations, usually NGOs, which certify that a particular project meets its stated objectives and its stated volume of emissions. 

There are five qualities to be considered when measuring a high-quality carbon credit.

Real

Simply put, the authenticity of carbon credits relies on how much emission reductions are made and how well the emission reductions are measured. These reductions must be based on robust methods with rigorous monitoring, reporting and verification (MRV) of a farm’s activities.

Effective measurements must avoid over- and under-estimation of carbon levels. Recording historical data before the carbon farming project began, with regular reporting of farm information throughout the process makes the data for verification more robust and reliable.

Additionality

Additional or newly created carbon savings on top of baselines, that would otherwise not have happened without incentives, can be credited. Carbon farming projects are considered additional if:

• it is expected to generate additional benefits over the baseline measurements
• not required by law
• it incentivises farmers to make change
• it would not continue without carbon income
• it is expected to respond to carbon generated income — that is the project would alter its practices if carbon income ceases during the project lifespan
• generates significant economic benefit, including asset valuation

Permanence

Carbon sequestration means lasting carbon storage —otherwise, no real emission reduction is created. Sequestered carbon must stay intact in soils or trees. And all avoided emissions are considered permanent (e.g., emissions associated with fossil fuel and fertiliser use). Otherwise, permanence reversal, or the loss of verified soil carbon sequestration must be managed to ensure all credits sold have a permanent impact.

Non-Leakage

Carbon leakage occurs when a farm causes an increase in greenhouse gas emissions outside the project boundary. For example, increasing the use of organic fertiliser on one farm may reduce the application of organic fertiliser on another farm (which is outside the carbon project area). One farm gains soil carbon, while the other farm loses soil carbon. The net result is zero. (An exception to this scenario is if organic fertiliser is sourced from systems that don’t apply the organic material to soils).

Verified

Verification ensures that a farm measures up to standard for carbon credits to be awarded. Usually, a third-party organisation takes the data from a farm to accurately assess whether changes have occurred in soil carbon levels overtime. The verification process determines if an emissions reduction and carbon sequestration has truly taken place as evidenced by a verification report.