Carbon markets are systems designed to reduce greenhouse gas (GHG) emissions by enabling the trading of emission allowances or credits. They assign a monetary value to carbon emissions, incentivising entities to adopt cleaner practices and technologies.

Carbon markets facilitate the buying and selling of carbon credits, each representing the reduction or removal of one metric ton of CO₂ or its equivalent in other GHGs. They are traded on essentially two types of markets.

A compliance carbon market is one that focuses on obligatory emissions targets, such as a country that wants to meet its climate target under the Paris Agreement (NDC) or a company that must comply with a binding government policy requiring it to purchase a certain number of carbon credits.

On the other hand, A voluntary carbon market is one that focuses on obligatory emissions targets, such as a country that wants to meet its climate target under the Paris Agreement (NDC) or a company that must comply with a binding government policy requiring it to purchase a certain number of carbon.