Carbon Markets

What are the voluntary carbon markets (VCM) and how do they work?

Introduction

The voluntary carbon markets (VCM) are a market where the rights to a verified avoidance, reduction, or removal of greenhouse gases (GHG) are sold. These rights are then bought by people and organisations for their climate impact. This drives financing to climate projects and enables organisations and other entities to reach their climate goals.

Most of the environmental claims in todays market are issued as carbon credits and accounted statically per ton of CO2e (CO2 and other equivalents).

--> Dynamic vs Static accounting of carbon claims

--> The difference between voluntary and compliance carbon markets (not availabale)

VCM Standards

The VCM is a self-regulating market. There are a couple of organisations that issue new carbon claims called standards. A few examples for these organisations are Goldstandard, Verra, and recarb. It's their task to create the rules of the asset class they issue. They do not only determine what kind of projects are accepted and if the stored carbon is accounted statically or dynamically but also how the asset can be transferred, and how to claim it's environmental impact (e.g. retirement).

By following a standard's guidelines, project developers are able to certify their projects with them. Good quality projects should follow three principles: Additionality, durability, and measurability. Once a project has been certified it can be viewed on the carbon registry of the specific standard.

Additionality

Additionality is an important requirement for the creation of environmental claims. It means that the climate action would not have taken place without the financing through the voluntary carbon markets. E.g., you can't sell negative emission claims of a solar park you would've built anyway.

Durability

Once emissions have been released into the carbon cycle, we do not have many ways to remove them permanently. In fact, almost all of the climate projects only keep carbon out of the atmosphere temporarily. Durability describes the time CO2e are stored in a climate project.

--> Learn more about the carbon cycle

Measurability

Measurability or verifiability is a necessary condition to developing climate projects. If you can't measure the amount of CO2e that is removed from the atmosphere it's impossible to create good quality environmental claims. Most carbon credit based projects only measure the climate impact at the issuance of the carbon credit and not the performance over time.