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Voluntary Carbon Markets / Credits

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CARBON CREDITS

  • A carbon credit is a certificate representing one metric ton of CO2 equivalent that is either prevented from being emitted into the atmosphere (emissions avoidance/reduction) or removed from the atmosphere as the result of a carbon-reduction project

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  • Carbon credits (or Offsets) are Measurable,  Verifiable emission reductions from certified Projects (that are climate action).

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CARBON CREDIT PROJECTS

These certified carbon-reduction projects remove GHG emissions and are of three types

  1. AVOIDANCE: Ex: avoid Deforestation, avoid use of fossil-fuel by use of renewable; Avoid CH4 from landfills 

  2. REDUCTION  Reduce Flaring, CO2 vents & Methane leakages,

  3. REMOVAL: Nature-Based (ex: Reforestation) – or Technology-based removal projects (CCS & DAC) 

  • For transparency, carbon credits are assigned serial numbers 

  • They are issued, transferred and permanently retired (so not used again) in publicly accessible emission registries.

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COMPLIANCE CARBON MARKETS (CCM)

The compliance carbon market is a regulated market where credits are sold/purchased to offset the emissions. The EU Cap & Trade market is a best example, California's Low Carbon Fuel Standards (LCFS) is another. 

  • The CCM is very large and credits have traded at $95 but dropped to $65 in March 22

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VOLUNTARY CARBON MARKETS (CCM)

The voluntary carbon market is a encompasses all transactions of carbon offsets that are not purchased with intention to surrender into an active compliance market

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  • DRIVERS: Voluntary demand for carbon offsets is driven by companies and individuals that take responsibility for offsetting their own emissions, known as purely voluntary buyers, as well as entities that purchase pre-compliance offsets before emissions reductions are required by regulation.

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  • Driven by a variety of reasons related to corporate social responsibility, ethics, and reputational or supply chain risk. 

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  • Pre-compliance buyers speculatively procure offsets before a compliance carbon market start date, hoping to obtain a lower price than what the same offset may eventually fetch in the compliance program.

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  • The VCM is smaller than CCM, about 200  MT of carbon credits were issued in 2021.

 

  • The prices are expected to go up but have varied between $3 -$7/Tonne

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