What is the Voluntary Market ?

The carbon market can be divided into two segments, that where emissions of greenhouse gases (GHGs) are regulated by carbon reduction regimes and that where GHG emissions are offset voluntarily. The former is known as the "compliance" market; the international agreement binding the largest of these compliance markets is the Kyoto Protocol. The "voluntary" carbon market encompasses all verified emission reductions that are not required to comply with any regulation.

In the voluntary market, emission reduction credits -or offsets- are generated by projects taken on voluntarily to reduce GHG emissions. An emission reduction credit - or one metric ton of CO2 equivalent (tCO2e) that has been implemented and verified - is generally referred to as a Verified Emission Reduction (VER).

In contrast to the regulated markets, where compliance is the single market driver and emission reductions once verified and issued are considered almost as commodities, participation in the voluntary market is driven by different interests. As a result, not every VER is viewed equally.

Demand for VERs -concentrated primarily in Europe, United States, Australia, and New Zealand- is driven by consumer and corporate social responsibility, public relations/branding, philanthropy and pre-compliance obligations. This multiplicity of demand drivers results in an assortment of preferences and tastes for project types, transparency and quality, which in turn has resulted in about a dozen different verification Standards and a vast array of prices. Emission reduction projects that meet a given Standard are registered on the corresponding registry and traded through exchanges or over the counter.

The incorporation of registries has greatly improved the traceability of VERs from origination to retirement. Furthermore, registries are vital for the creation of credible and fungible VERs because they clarify the ownership of offsets and minimize the risk of double counting them.

As the voluntary market continues to mature and the legislative developments towards a cap-and-trade regulation in the United States, Australia and New Zealand evolve, the need for quality and transparency has translated into higher demand for the most stringent type of Standards. Those Standards all have in common that they require that offsets be real, measurable, permanent, unique, additional and independently validated and verified by qualified third parties.

Thanks to the growing maturity of the voluntary markets, today it is possible to obtain quality VERs that are not only highly reliable, but also increasingly compatible with emission reductions used in compliance markets.