Voluntary carbon credits11/10/2023 ![]() ![]() Currently, there are four dominant carbon standard-setting bodies and these standards vary in their approaches, methodologies, and requirements. Further, a registry agency maintains the record and labels the credit, tracks the owners, and makes information publicly available. When verified, credits are issued and made available for trade. ![]() Projects can begin implementation after the completion of their registration.Ī carbon standard is applied to certify the emission reductions based on evidence of compliance being reviewed by an independent third party. The prepared project documentation is verified by an independent third-party auditor (Validation/Verification Body, VVB), and upon proper validation, the project is registered. The stakeholders involved in the project cycle choose the VCM standard (explained below) and an approved methodology under which the project is developed. Which involves taking CO 2 out of the atmosphere and using or storing it. GHG avoidance/reduction from existing sources.įunding the implementation of lower-carbon technologies such as renewable energy or avoiding practices that cause emissions such as reducing deforestation.Each credit developed represents one ton of carbon dioxide equivalent (CO 2e) that is sequestered or has not been emitted and the project developed mainly falls under the two broad groups: The project or program cycle includes the whole process through which VCM projects or programs are designed, carbon credits are issued and traded, and the steps involved are as shown below:Ĭredits are generated from projects, a bundle of projects, programs, or public policies that aim to achieve environmental benefits. Overall, VCM presents an opportunity to protect and expand carbon sinks, incentivize negative carbon production, and increase the flow of carbon from the atmosphere in a short-term period. This encourages participation, learning, and innovation through research and development. VCM also enables the participants to experiment with new technologies, allows project developers to develop and implement projects that might be too small or not viable for the compliance markets, volunteer easily and gain experience with carbon inventories, avoidance, reductions, storage, and carbon markets. It not only helps them to offset their hard-to-abate emissions but also channelizes the investment to the developers/entities where they can invest in carbon offset projects such as tropical forests. It functions outside of compliance markets and enables companies and individuals to purchase carbon offsets voluntarily with no intended use for compliance purposes. However, voluntary carbon markets (VCM) work differently, in voluntary markets businesses and companies participate in the mechanism to lower their carbon footprint as part of their initiatives such as Roadmap for Net Carbon Zero. Some examples of compliance carbon market are European Union Emission Trading System (EU ETS), Western Climate Initiative (WCI), and Regional Greenhouse Gas Initiative (RGGI). ![]() The compliance carbon markets are deployed as part of the country’s national strategy through an obligation to reduce their emission within the limit agreed upon under global accords like Kyoto Protocol or Paris climate change accord. There are primarily two types of carbon markets – the compliance market and the voluntary market. A carbon market mechanism allows investors and corporations to trade both carbon credits and carbon offsets simultaneously which mitigates environmental crisis, while also creating new market opportunities. The Kyoto Protocol laid down the foundation of Market Based Instruments (MBIs) for emission reduction, one of which was the Clean Development Mechanism (CDM) which allowed a country with an emission reduction or limitation commitment to implement or fund a project that can earn certified emission reduction (CER) credits to meet Kyoto targets. The carbon market concept was first formally introduced in 1997 under the United Nations Framework Convention on Climate Change (UNFCCC)’s Kyoto Protocol on climate change which had more than 150 nations signatories. Carbon Markets are emerging as another major path to Net Zero complimenting the direct technology interventions to reduce carbon emissions. Businesses have increasingly understood the magnitude of climate risks to their businesses and the need for urgent climate action. In the last decade or so, the global community has realized the need for efforts to mitigate climate change both individually and collaboratively. ![]()
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