Understanding Carbon Offsets

Independent Crediting Programs

Voluntary carbon markets enable businesses, governments, nonprofit organizations, universities, municipalities, and individuals to offset their emissions outside a regulatory regime. These entities can purchase credits that were created either through the voluntary or compliance markets. Trading and demand in the voluntary market are created only by voluntary buyers (corporations, institutions, and individuals) whereas, in a compliance market, demand is created by a regulatory mandate.

Because voluntary carbon credits cannot be used in compliance markets, they tend to be cheaper. Because voluntary credits are typically purchased in coordination with public relations efforts to present a company or organization as a climate actor, many factors can influence a buyer’s interest in a project to best present this image. Pricing in voluntary carbon credit markets reflects this reality, in which buyers have varied objectives in purchasing carbon credits. Voluntary market carbon credits differ in price based on project charisma and potential for marketing, project type, location, and co-benefits beyond climate impact that match with buyers’ preferences.

The voluntary carbon credit market includes a wide range of programs, entities, standards, and methodologies. Carbon credits generated for voluntary markets have been promoted as an opportunity for experimentation and innovation. They have the general advantage of lower transaction costs than carbon credits generated for use in compliance programs. Voluntary markets also serve as a niche for micro-scale projects that are too small to warrant the administrative burden of compliance crediting programs or for projects currently not covered under compliance schemes. However, the lack of standardized quality criteria, in the early stages of the voluntary market, generated concern from the wider carbon credit market.

In response, carbon market actors launched several efforts to create standards and methodologies to improve the quality and credibility of carbon credits for voluntary use. These standards and independent programs differ significantly in their goals and the services provided.

At one end are complete crediting programs that have developed standards, including rules, requirements, and administrative systems for accounting, quantifying, monitoring, reporting, verifying, certifying, and registering offset projects and credits. The standards developed by these full-fledged programs tend to build on existing rules and procedures from compliance markets, most notably the CDM. These programs are designed to furnish carbon credit sellers with quality assurance certification and carbon credit consumers with greater transparency and confidence in the credibility and integrity of certified credits.

At the other end are standards that are more limited in scopes, such as the International Organization for Standardization (ISO) standard 14064-2 and guidance references like the WRI GHG Protocol for Project Accounting. These standards and guidance provide common definitions, accounting frameworks, and quantification options that can be adopted or adapted by individual crediting programs.

Other standards, such as the Climate, Community & Biodiversity Standards or SocialCarbon provide design criteria to ensure robust project design and, particularly, in this case, local community and biodiversity benefits.

The proliferation of standards, methodologies, and other programs reflects the significant flux and experimentation in the voluntary carbon credit market.

Related pages:

American Carbon Registry
Climate Action Reserve
Verified Carbon Standard
Gold Standard
Plan Vivo System