Positive Environment News

Factbox: Unravelling The Voluntary Carbon Market

Date: 24-Mar-10
Country: US
Author: Nina Chestney

Buying activity in the voluntary carbon market remains slow due to weak demand in the first quarter.

Voluntary carbon offsets allow individuals and companies to compensate for their own greenhouse gas emissions by funding projects that reduce emissions, often in developing countries.

Projects can include land-use, methane, biomass, renewable energy or industrial energy efficiency.

The unregulated voluntary market operates outside mandatory emissions reduction schemes such as the U.N.'s Clean Development Mechanism (CDM) or the European Union's Emissions Trading Scheme.

It evolved largely in the United States as a market-based mechanism to address climate change and in Europe as a by-product of implementing the Kyoto Protocol.

Carbon credits totaling 123 million tonnes, valued at $705 million, were transacted in the global voluntary carbon market in 2008 -- a fraction of the $126 billion global carbon market.

Some of the jargon used in the voluntary market is unraveled below:

VERIFIED EMISSIONS REDUCTIONS (VERs): A VER represents one tonne of carbon dioxide reduced. The credits can be generated from projects that fall outside of the scope of the CDM, from a country which has not ratified the Kyoto Protocol, or they are specifically developed for the voluntary market.

PRE-CDM VERs: These credits are generated by CDM projects that have been operational but have not yet been registered with the CDM Executive Board. They may not become CDM credits, called certified emissions reductions, but they can be sold in the voluntary market.

Pre-CDM VERs are a major source of supply to the voluntary market because they provide an early revenue stream crucial for project development.

VOLUNTARY CARBON STANDARD: The VCS is a global standard for voluntary offset projects and ensures they have real environmental benefits. It operates a registry system to track credits from issuance to retirement. The founding partners of the VCS are The Climate Group, the International Emissions Trading Association (IETA) and the World Business Council for Sustainable Development.

VOLUNTARY CARBON UNIT (VCU): VCUs are credits created under the Voluntary Carbon Standard Programme.

GOLD STANDARD: The Gold Standard Foundation is a non-profit organization which operates a certification scheme for premium quality carbon offsets. The Gold Standard quality benchmark is considered to be the highest in the voluntary carbon market.

VER+: The VER+ Standard was developed by international certification organization TUV SUD. It was the main standard for offset credits before the VCS began in 2007 but has since declined in popularity.

'EXOTIC' CREDITS: The term 'exotic' refers to the location of the emission reduction project, usually in countries with smaller project numbers.

VINTAGE: Vintage refers to the year the carbon reduction takes place.

CLIMATE RESERVE TONNES (CRTs): CRTs are traded under California's Climate Action Registry. Members of the registry include over 300 of the world's largest corporations, universities, environmental organizations and government agencies. They voluntarily measure, monitor and publicly report their greenhouse gas emissions using the registry's protocols.

CHICAGO CLIMATE EXCHANGE: The CCX is North America's only voluntary, legally binding greenhouse gas reduction and trading system.

CARBON FINANCIAL INSTRUMENT: The CFI contract is the commodity traded on the CCX, each of which represents 100 metric tons of carbon dioxide (or equivalent).

(Editing by Amanda Cooper)

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