Carbon credits are suddenly a hot topic, ever since Labor won the election.
👉 Background: If a big company wants to offset its carbon emissions, it can purchase carbon credits. In effect, these credits pay for someone else to preserve or restore forests, which offset carbon emissions.
👉 What happened: 1 carbon credit can generally offset 1 tonne of carbon emissions. But the price of a carbon credits goes up and down... and you can buy them from a range of different providers.
👉 What else: Fund manager VanEck Australia is set to launch the Global Carbon Credits ETF on the ASX, which is designed to track the price of carbon.
💡 The carbon credit market - like any market - is driven by supply and demand. Where there's more supply of carbon credits, the price of a carbon credit decreases. When there's more demand, the price increases.
💡 The market plunged more than 30% in March after the government flooded the market with more supply. Today, the price surged 20%. Why? Well, investors are expecting the Labor government to enforce more aggressive emissions reduction goals.
💡 This means more companies may be required to purchase carbon credits (aka reducing supply). So, unless more credit units are created fast, the price could continue to rise!
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