Understanding the voluntary carbon market

The monitoring, reducing and offsetting of carbon emissions by corporations, organisations and individuals is rapidly moving from an ‘if’ and ‘why’ scenario to a ‘when’ and ‘how’ one. For the Kyoto Protocol signatory nations, this shift is one that combines elements of education, obligation and cooperation. For the few nations that have not signed on to the Kyoto Protocol, the change in attitudes and actions has come about at a slower pace and has been led by education, globalisation (both through global consumer and industry expectations) and innovation.1 The voluntary carbon market, currently a very small part of the overall carbon market, is expected to grow by up to 2,000 percent in the next five years. A recently launched standard, the Voluntary Carbon Standard (VCS), aims to provide the voluntary carbon market with the transparency and credibility needed to ensure a stable and productive future.

Regulatory market

To fully understand the voluntary carbon market and the overall potential of the carbon market as a whole, one must first get an understanding of the regulated carbon market. The major regulatory market elements, all of which are a direct result of the Kyoto Protocol, are the European Union Emissions Trading Scheme (EU ETS), the Clean Development Mechanism (CDM) and the Joint Implementation (JI). These three schemes account for roughly 97 percent of the total carbon market, with EU ETS alone accounting for almost 70 percent of the market.

The EU ETS involves about 12,000 sites across Europe and solely relates to CO2 emissions, while the CDM and JI involve all greenhouse gases. The Kyoto Protocol expires in 2012, with discussions currently taking place for a global plan to take us beyond 2012. In addition to their obvious leadership in the EU ETS market, Europe also plays the largest role in CDM and JI projects. In 2006, 86 percent of projects were purchased by Europe, with the UK making up 50 percent of the overall total on its own. China and India dominate the sellers market, with India leading in number of total projects and China far ahead in total volume of Certified Emissions Reductions (CER’s).

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