5 golden steps to establish a foreign company to trade carbon credits: Fast, effective, cost-saving

Carbon credit trading is a potential market and has a huge demand in the future with the whole world moving towards Netzero.

1,602 billion USD is the predicted figure for the carbon credit market in 2028 according to Statista. Therefore, the carbon credit business is one of the potential fields for international enterprises. In this article, GLA will answer for Enterprises:

• What is the carbon credit market?
• How to trade the carbon credit market?
• Process of establishing foreign companies in Singapore, USA, Hong Kong, etc. to do carbon credit business in a complete package. 

1. What is carbon credit? What is carbon offset?

A carbon credit is a certificate that represents the right to emit a certain amount of greenhouse gas, usually CO2. It is like a "permit" that allows you to release a certain amount of carbon into the atmosphere. Companies with excess carbon credits can trade them with businesses that need to offset their carbon emissions. 

Carbon offsetting is the act of buying carbon credits to compensate for the emissions you have already created. In other words, you are "buying" the right to emit emissions that someone else has reduced.

Comparing carbon credits and carbon offsets

2. Carbon credit market?

The carbon credit market is a trading system that allows organizations to buy and sell the right to emit greenhouse gases, primarily CO2. It is an economic mechanism designed to encourage the reduction of greenhouse gas emissions, contributing to the fight against climate change.

Types of carbon credit markets: 

• Market required: In some countries, compliance with carbon credits and carbon credit trading is required based on policies and regulations of international agreements to achieve the goal of reducing greenhouse gas emissions and cutting CO2. 
• Voluntary market: This is a market where the trading and buying and selling of carbon credits takes place voluntarily without being bound by legal regulations like the mandatory market. Organizations, individuals, and businesses proactively buy and sell carbon credits to reduce greenhouse gas emissions, aiming to comply with ESG. 

3. What is a carbon credit exchange? 

A carbon credit exchange is an online or physical platform where organizations and businesses can buy and sell the right to emit greenhouse gases (usually CO2).

This is a market mechanism that incentivizes emissions reductions, creates an economic value for emissions reductions, and helps businesses achieve carbon neutrality goals.

Compare with stock exchange: If the stock exchange trades the shares of companies, the carbon credit exchange trades the right to emit emissions.

4. Process of putting carbon credits on the trading floor

Getting a carbon credit listed on an exchange requires a fairly complex and tightly controlled process. Here are the basic steps:

5. Famous carbon credit trading floors in the world 

Famous and reputable carbon credit trading products in the world include:

1. EU ETS: European Union Emissions Trading System, one of the world's largest carbon credit exchanges.
2. Chicago Climate Exchange (CCX): North America's first credit exchange since 2003 and also one of the first carbon credit exchanges in the world. 
3. China National Emissions Trading Scheme: is China's carbon credit trading platform.
4. California Cap-and-Trade Program: The exchange is located in the state of California, USA, with participation from Canadian provinces.
5.  J-Credits (Japan Carbon Credit Trading Scheme) is a Japanese carbon credit trading platform.
6. Climate Impact X (CIX) is a global carbon market exchange based in Singapore.

6. What do businesses need to do to get carbon credits?

Businesses that want to build and collect carbon credits need to implement projects to reduce greenhouse gas emissions and offset carbon. The following are projects to reduce greenhouse gas emissions and build carbon credits:

• Invest in renewable energy: Build solar power plants, wind power plants or other renewable energy sources
• Improve energy efficiency: optimize energy-saving solutions, replace energy-saving products to reduce emissions. Use lighting equipment, for example solar lighting systems instead of using electric equipment. 
• Afforestation: carry out afforestation and forest protection projects, carbon sequestration. 
• Carbon and methane capture and sequestration: Use soil and plants to capture carbon and methane, removing these two gases from the air. Methane is a highly heat-trapping gas, which is the cause of global warming. 

7. Countries that allow carbon credit trading

The carbon credit market is growing globally, with the participation of many different countries and regions. Each country has its own characteristics and policies towards this market.

Below are some typical countries that have been implementing carbon credit trading systems:

8. Policies related to international carbon credit trading 

The international carbon credit market is influenced by a range of policies and regulations, both at the national and international levels.

These policies play an important role in shaping how markets operate, promoting emissions reductions, and ensuring the environmental integrity of emissions reduction projects.

The Paris Agreement and Market Mechanisms: 

• Paris Agreement: This is a major international agreement on climate change. It established a common framework for countries to voluntarily set targets for reducing emissions and increasing their ability to adapt to climate change. The Paris Agreement has provided a strong impetus for the development of global carbon markets.
• Market mechanisms: The Paris Agreement has facilitated the use of market mechanisms such as emissions trading (ETS) and clean development mechanism (CDM) to achieve emission reduction targets.
• ETS (Emissions Trading System): Is an emissions trading system that allows countries and businesses to buy and sell emission rights. ETS has been implemented in many countries, especially in the European Union (EU). 
• CDM (Clean Development Mechanism): Is a mechanism that allows developed countries to reduce their greenhouse gas emissions by funding emission reduction projects in developing countries.

9. How is carbon calculated and carbon price determined?

To determine carbon emissions, businesses and organizations often use the following methods:

• Greenhouse gas inventory: This is the process of quantifying the greenhouse gases emitted from an organization's operations. The main greenhouse gases include carbon (CO2), methane (CH4), and nitrous oxide (N2O).
• Life cycle analysis: This method assesses the total emissions generated over the entire life cycle of a product, from raw material production to final product disposal.
• Use a calculator: There are now many online greenhouse gas calculators available that make it easy for organizations to estimate their emissions.

Carbon prices can be determined through different mechanisms, depending on the market and trading system:

• Auction mechanism:
  • Governments or regulatory agencies hold auctions to sell carbon credits.
  • The price of carbon credits will be determined by supply and demand in the market.
• Direct trading mechanism:
  • Businesses can buy and sell carbon credits directly with each other through exchanges or private agreements.
  • Prices will be negotiated between the parties involved in the transaction.
• Carbon tax: The government imposes a certain tax on each ton of CO2 emitted. This tax will directly affect the cost of products and services.

10. Why should you set up a foreign company to trade carbon credits?

Establishing a foreign company to trade carbon credits is becoming a trend that attracts the attention of many businesses. Here are the main reasons why:

• Tax incentives: Many countries have preferential tax policies, so establishing a foreign company will optimize tax costs for the company, for example: Established company in Hong Kong There will be no VAT, corporate income tax, foreign income tax, or contractor tax. 

Businesses should compare tax rates in foreign countries before deciding on a country to establish in. Use GLA Tax Comparison Tool to compare foreign countries' taxes in Singapore, Hong Kong, USA, etc.

• Easy to trade international carbon credits: in foreign countries there are international carbon credit exchanges, businesses can easily participate and trade carbon credits here.
• Approaching foreign businesses to buy carbon credits: foreign countries, especially developed countries that do not have natural conditions to create carbon credits, will be potential customers for foreign companies. Establishing a company in Singapore or the US is an opportunity to approach foreign customers to buy carbon credits.
• Asset protection and risk management: foreign countries will separate assets and protect corporate assets, dispersing risks when there are political and economic problems. 
• Owner information security: some foreign countries will have regulations on owner information security. Therefore, establishing a foreign company will help protect the company owner's information. 
• Building brand image: establishing a foreign company to trade carbon credits will help enhance the corporate image towards international ESG compliance, thereby enhancing brand value and position compared to competitors. 
• Attracting business investment capital: establishing a foreign company to trade in carbon credits is an opportunity to access larger and more favorable foreign investment capital sources. 

11. Procedures for establishing a foreign company to trade in carbon credits

12. How does GLA support businesses in establishing foreign companies to trade in carbon credits?

GLA expert with over 10 years of experience foreign company formation in singapore, Hong Kong, Mỹ, etc. carbon credit business will support Enterprises:

• Choose the right foreign country for your carbon credit business.
• Prepare complete procedures for opening a foreign company for businesses. 
• Support businesses to open traditional bank accounts, foreign digital banks, optimally and conveniently for international carbon credit transactions. 

13. Frequently asked questions when opening a foreign company to trade carbon credits

Highlights

• Carbon credit business is a green business trend in international business for global enterprises. 
• Implementing emission reduction projects is the first step to help businesses trade carbon credits on exchanges.
• Establishing a foreign company in Singapore, Hong Kong, the US, etc. helps businesses easily buy and sell carbon credits, and access businesses with transaction needs.