Introduction
Voluntary Carbon Market
In this newsletter, we look at the voluntary carbon market (VCM). It can be confusing, so we answer a few questions about what it is, how it works and how it will help mitigate climate change.
What is the VCM?
The VCM is a way for private entities that emit carbon to voluntarily buy and sell carbon credits, separate to the regulations and initiatives of governments. It is not new – the VCM started in the 1990s, but took time to grow in terms of the number of transactions, the number of participants, and the types of credits available. In the past five years, this market has more than doubled in size and helped fund a wide range of emission‑reducing projects worldwide.
However, the VCM has not been without its critics. US comedian John Oliver is perhaps the most prominent critic of VCM, expressing scepticism about the effectiveness of using offsetting to reduce carbon emissions. However, other commentators have pointed out that different schemes, which operate on a global scale and across borders, vary in scope and quality. Analysts at Ecosystem Marketplace found that there is an “astonishing diversity” among VCMs and private entities looking to get involved in offsetting should seek out high‑quality schemes, citing the importance of transparency for true integrity.
How does it work?
Carbon emitters can offset unavoidable emissions by buying carbon credits for projects that are targeted at reducing or removing greenhouse gases in the atmosphere. Every credit corresponds to a metric ton of reduced, removed or avoided carbon dioxide or an equivalent greenhouse gas. Once a credit has been used this way, it shifts to a register for retired credits and can no longer be traded. Companies have the option of getting involved in the VCM as an individual entity or as part of an industry‑wide programme.
Can it help mitigate climate change?
VCM trading is playing an important role in mitigating climate change. It is one of many steps companies can take to help reduce carbon emissions, along with improving their own practices, making environmental stewardship the focus of all operations, and investing in the new technologies that are helping industries meet net‑zero goals.
What are some examples of success stories within VCM?
The industry‑based VCM schemes have proven to be particularly successful in helping industries that are under pressure to reduce, offset and even eliminate emissions. For example, operators in the carbon‑heavy aviation industry can get involved with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). International airlines have made the pledge to offset all CO₂ emissions they produce above a 2019 baseline level.
As well as aviation, oil and gas companies were early adopters of carbon credit purchasing schemes. Financial industry players are also joining VCM initiatives as a way to help them meet their own net‑zero goals or hedge against the financial risks of the energy transition, as countries across the world move away from reliance on fossil fuels in favour of renewables, such as solar and wind power.
In summary, it is important to view the VCM as a way to top up an organisation’s contributions towards genuinely reaching net zero, rather than being used as a greenwashing tool. The Climate Focus consultancy reiterates Ecosystem Marketplace’s conclusion that transparency is essential for the VCM to grow and mature at scale. Due diligence by investors is essential to ensure carbon credits can support.
Should you need any further information, please do not hesitate to contact us at info@carbonaires.com.
