The Kyoto Protocol and its flexibility mechanisms – Clean Development Mechanism (CDM), Joint Implementation (JI) and Emissions Trading – created a market for carbon. This market is based on the trading of emissions reductions and/or emission allowances to assist countries in meeting their emission reduction commitments. Some countries have passed on part of this commitment to industry. As this market is defined by legally binding obligations it is referred to as the Compliance Carbon Market or Regulatory Carbon Market.
Parallel to the compliance market, a Voluntary Carbon Market has emerged which, unlike the compliance market, does not rely on legally binding reductions to generate demand for carbon credits. Companies and individuals purchase carbon credit for philanthropic reasons to offset their carbon emissions.