What are compliance carbon markets?

Compliance carbon markets are markets where businesses have to meet legal pollution reduction goals. These markets usually come from government rules, like a cap-and-trade system, and businesses in the market need to have enough carbon credits to balance their pollution. In a cap-and-trade system, a limit is set on the total pollution allowed in the market. This limit is then divided into credits and given to businesses in the market. Each credit allows a business to produce a certain amount of pollution. If a business produces more pollution than its credits allow, it must buy more credits. If a business doesn't use all its credits, it can sell them. Compliance carbon markets try to encourage businesses to pollute less by making it expensive to produce too much pollution. The cost of carbon credits depends on how many are available and how much demand there is for them, to encourage businesses to invest in cleaner technology and practices. Examples include the European Union's Emissions Trading System and California's Cap-and-Trade Program, which aim to lower pollution by setting legal goals and creating financial reasons for businesses to pollute less.