Carbon market refers to a system that trades carbon emission quotas or carbon credits through market mechanisms to control and reduce greenhouse gas emissions. The purpose of the carbon market is to convert carbon emissions into an economic cost or benefit, prompting companies, countries or individuals to reduce overall emissions through trading quotas or carbon credits, and promote global action to combat climate change.

Types of Carbon Markets:
There are two main forms of carbon markets: quota trading markets and voluntary carbon markets.

Cap-and-Trade Market:

Governments set emission caps for certain industries and allocate or auction carbon emission quotas to companies.
If a company's emissions are lower than the allocated quota, it can sell the excess quota; companies that emit more than the quota must buy quotas from other companies.
**The European Union Emissions Trading System (EU ETS)** is one of the world's largest carbon emission quota trading markets and a typical example of a quota trading market.

Voluntary Carbon Market:

Companies, individuals or institutions can voluntarily purchase carbon credits to offset their own greenhouse gas emissions, usually by investing in carbon reduction projects (such as afforestation, renewable energy projects, etc.) to obtain these carbon credits.
These carbon credits are called Carbon Offsets, which represent one ton of carbon dioxide equivalent (CO₂e) reduced or absorbed by the project.
The Voluntary Carbon Market is more for companies or individuals who want to improve their environmental image through voluntary actions.

How the carbon market works:
Setting carbon emission limits: In the quota trading market, the government sets a cap on greenhouse gas emissions for a region or industry and allocates emission quotas to companies. Each quota represents a certain amount of carbon dioxide (usually one ton of carbon dioxide equivalent) that the company can legally emit.

Carbon trading: If a company does not use up its carbon quota, it can sell it to other companies whose emissions exceed the quota; companies that exceed the emission limit must purchase additional quotas from the market before they can legally emit.

Carbon credits and carbon offsets: In the voluntary carbon market, companies or individuals offset their own carbon emissions by purchasing carbon credits, which usually come from green projects (such as reforestation or clean energy projects).