Voluntary Carbon Market: Overview

Purpose and Importance:

The Voluntary Carbon Market (VCM) enables businesses, governments, and individuals to purchase carbon credits to offset their emissions. Carbon credits can be seen as a company’s voluntary tax on their emissions, channelling funding into projects that reduce or remove carbon from the atmosphere.

Companies around the world are under growing pressure to reduce their carbon footprint. After lowering emissions, purchasing high-quality carbon credits to offset remaining emissions is an essential strategy for businesses to make a significant contribution to sustainability.

How it works:

1 Carbon Credit Creation

Projects that reduce or remove carbon generate carbon credits. Each credit represents one metric tonne of CO2e.

2 Certification

The emission reductions and removals are verified by a third-party then registered through standards like Verra or the Gold Standard.

3 Trading

Once registered, these carbon credits can be sold directly to an end buyer or to an intermediary who will trade them into the secondary market.

4 Revenue

Project developers can fund their activities that reduce or remove CO2e with the revenue generated from selling carbon credits.

Participants:

Project Developers

Create and manage projects that generate credits

Standard Bodies

Certification, verification and standardisation to ensure project credibility

Buyers

Companiesor individuals seeking to compensate for their emissions

Brokers, Traders and Retailers

Facilitate the buying and selling of carbon credits

Trends and Challenges:

Growth in Demand: Increasing awareness of climate issues, corporate responsibility and net zero targets, are driving demand for carbon credits.
Pricing Variability: Prices vary based on project type, location, additionality and co-benefits.
Quality Concerns:In light of increasing scrutiny on the effectiveness of some carbon credits, project developers are placing extra emphasis on guaranteeing the quality of their projects.
Regulatory Developments: Governments are beginning to scrutinise and regulate the market to ensure it effectively contributes to climate goals.

Future Outlook:

The market is projected to grow as more entities commit to net-zero targets and as international cooperation on climate action intensifies. However, ongoing improvements in transparency, standardisation, and verification are crucial to its long-term efficacy and credibility.