Voluntary Carbon Market Primer

There are a number of tools available to governments, organisations and civil society to tackle climate change.

The Carbon Markets represent one such tool; they are a market-based mechanism that enables players to achieve their environmental commitments in the case where they are not able to immediately reduce emissions to the level required by law or against self-prescribed commitments.

In the Voluntary Carbon Markets, anyone can purchase carbon credits from the market. These credits can then be retired on behalf of the purchaser to demonstrate the investment they have made into the environment.

The goal of the Voluntary Carbon Market is to enable the development of carbon projects across the globe that can abate, reduce or remove greenhouse gas emissions from the atmosphere. Projects typically focus around the development of one technology type that can verifiably enable emissions reductions through the deployment of technologies that can reduce dependency on the extraction of hydrocarbons from the environment, or that can explicitly remove carbon from the atmosphere through natural or technical sequestration technologies.

The voluntary carbon markets are unregulated and are facilitated by Standards Bodies that set the minimum quality criteria required for the issuance of carbon credits. Verra (Verified Carbon Standard) and Gold Standard are the two largest standards facilitating over three-quarters of the total voluntary carbon market. There are a number of smaller standard bodies, and an emerging group of organisations who focus on niche applications such as agriculture and carbon removals.

The Standard Bodies also host Registries that hosts information about each project that has been verified against its standard. The Registry is used to track the number of carbon credits issued against each project, transfers between the project developers and retailers, and retirements take place when the credit is removed from the market by an end-user. Robust tracking of the flow of carbon credits is critical so as to avoid double-counting. The avoidance of double-counting ensures every single carbon credit can only contribute towards the environmental commitment of one entity. Registry data is not public data.

The Standard Bodies set strict requirements that projects must abide by in order to become verified and allowed to issue credits. The requirements are detailed in project methodologies. The purpose of these methodologies is to ensure that all verified carbon projects achieve a basic quality threshold that gives integrity to the carbon credits issued, and gives assurances that they deliver the benefits that are claimed.

The compliance markets are out of scope currently for C3.