The market of carbon credits and biofuels

This thesis presents an analysis of possible strategies and solutions that could help in reducing global emissions and fighting climate change, one of the most difficult challenges that humanity has ever faced. The work considers multifaceted strategies to achieve this goal, focusing in particular on innovative tools, strategies and technologies such as carbon markets, biofuels, and carbon capture technologies. First, microeconomic insights are used to derive the principle that decisions of parties responsible for greenhouse gases emissions should be aligned with the their true costs, i.e. a cost should be placed on the their harmful consequences. These ideas represent the foundations of current international climate regulations, of which an historical evolution is presented, highlighting the most important milestones. Notably, the Kyoto Protocol and the Paris agreement, have opened the way to the creation of Emission trading systems. Different topologies of carbon markets (Cap and Trade and Baseline and Credit, regulated and voluntary) are presented and the current status of carbon pricing initiatives in the world is presented. Special attention is given to the European ETS, which because of its market volume and significance has been since its inception a benchmark for other emission trading systems worldwide. Subsequently, the role of biofuels in the energy transition, since they represent an alternative to fossil fuel, particularly useful to decarbonize the transportation sector. However, they still face technological barriers in achieving properties similar to those of fossil fuels, and sustainability pose concerns regarding raw material sourcing. Finally, the emission offsetting potential of Carbon Capture Utilisation and Storage is presented, discussing technologies like BECCS and DACS, but also nature-based solutions, like reforestation and afforestation, and enhanced natural solutions like Biochar. A combination of these strategies offers a powerful toolbox to achieve net zero emissions, especially in “hard to abate" sectors