Understanding Carbon Offsets
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Voluntary Offset Programs

Voluntary carbon markets enable businesses, governments, nonprofit organizations, universities, municipalities, and individuals to offset their emissions outside a regulatory regime. These entities can purchase offsets that were created either through the voluntary or compliance markets. Trading and demand in the voluntary market is created only by voluntary buyers (corporations, institutions and individuals) whereas in a compliance market, demand is created by a regulatory mandate.

Because voluntary offset credits cannot be used in compliance markets, they tend to be cheaper. Because voluntary offsets are typically purchased in coordination with public relations efforts to present a company or organization as a climate actor, many factors can influence a buyer’s interest in a project to best present this image. Pricing in voluntary offset markets reflects this reality, in which buyers have varied objectives in purchasing carbon offset credits. Voluntary market credits differ in price based on project charisma and potential for marketing, project type, location, and co-benefits beyond climate impact that match with buyers’ preferences.

The voluntary offset market includes a wide range of programs, entities, standards, and protocols. Offsets generated through voluntary markets have been promoted as an opportunity for experimentation and innovation. They have the general advantage of lower transaction costs than offsets generated for use in mandatory compliance programs.  Voluntary markets also serve as a niche for micro-scale projects that are too small to warrant the administrative burden of compliance offset programs or for projects currently not covered under compliance schemes. However, the lack of standardized quality criteria, in the early stages of the voluntary market, generated concern from the wider offset market.

In response, carbon market actors launched several efforts to create standards and protocols to improve the quality and credibility of voluntary offsets. These standards and protocols differ significantly in their goals and the services provided. At one end are complete offset programs that have developed standards, including rules, requirements, and administrative systems for accounting, quantifying, monitoring, reporting, verifying, certifying and registering offset projects and credits.  The standards developed by these full-fledged programs tend to build on existing rules and procedures from compliance markets, most notably the CDM.  These programs are designed to furnish offset credit sellers with quality assurance certification and offset consumers with greater transparency and confidence in the credibility and integrity of certified offsets.

At the other end are standards which are more limited in scope, such as the International Organization for Standardization (ISO) standard 14064-2 and guidance references like the WRI GHG Protocol for Project Accounting. These standards and guidance provide common definitions, accounting frameworks and quantification options that can be adopted or adapted by individual offset programs.

Other standards, such as the Climate, Community & Biodiversity Standards or SocialCarbon provide design criteria to ensure robust project design and, particularly in this case, local community and biodiversity benefits.

The proliferation of standards, protocols and other programs reflects the significant flux and experimentation in the voluntary offset market.

 

 

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