The voluntary carbon market (VCM) is a global trade in rights to claim responsibility for specific reductions of greenhouse gas (GHG) emissions or removals of GHGs from the atmosphere. Carbon credits, also known as offsets, are traded as tokens and can be sold multiple times. The VCM has grown rapidly in the past three years, reaching a value of $2 billion in 2021, with projections for the market to grow to the tens of billions by 2030. While these sums are small compared to overall climate needs, they can still benefit the world’s climate and sustainable development goals.
The VCM differs from compliance markets created by government policy, as it involves voluntary participation by buyers. Compliance markets, such as emissions trading systems, require companies to purchase official emissions permits to cover any surplus emissions. However, compliance markets can overlap with the VCM, as some governments allow companies to use voluntary credits to meet their obligations.
Carbon credits are generated through activities like protecting forests and wetlands, providing clean cookstoves, and switching to low-carbon agriculture. However, the VCM faces challenges related to integrity, including the quality of credit supply, credible demand from buyers, and how the market functions. Ensuring high credit quality involves accurate calculation of emissions changes, additional activities that wouldn’t have taken place without credits, permanent reductions or removals of GHGs, and no negative impacts on sustainable development.
The VCM is also addressing concerns related to the marketing claims made by buyers of carbon credits and the transparency of the market. Efforts are being made to develop standards, guidance, and codes of practice to ensure that claims reflect contributions to global climate mitigation and development. Additionally, transparency is essential to understand how benefits are distributed and to prevent hidden fees within credit transactions.
Overall, the VCM exists within the context of the United Nations framework, particularly the Paris Agreement. However, it reflects a policy failure, as voluntary action would not be necessary if governments were doing enough to meet climate goals. The VCM is also part of a larger struggle for sustainable development and climate justice, particularly for global south countries that have not received promised international finance from global north governments.