In a world grappling with the urgent need to combat climate change, the Voluntary Carbon Market (VCM) has emerged as a powerful tool for unlocking the potential to address climate change.
As governments and businesses alike seek innovative solutions to reduce greenhouse gas emissions, this market offers a unique opportunity to invest in projects that offset carbon footprints and promote environmental stewardship.
But what exactly is the Voluntary Carbon Market, and how does it work? In this article, we will delve into the intricacies of this market, exploring how it functions, who participates, and the impact it can have on our planet.
Join us as we uncover the untapped potential of the voluntary carbon market and discover how it is paving the way towards a greener and more sustainable future.
In this article you will learn about:
- Understanding the Voluntary Carbon Market
- The Importance of Climate Action
- The Role of the VCM in Addressing Climate Change
- How the Voluntary Carbon Market Works
- The Benefits of Participating in the Voluntary Carbon Market
- Choosing the Right Portfolio
- Trustable tools
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Understanding the Voluntary Carbon Market
The Voluntary Carbon Market allows individuals, organizations, and businesses to voluntarily purchase carbon offsets to compensate for their carbon emissions beyond their value chain.
Unlike the compliance carbon market, which is regulated by government policies and mandates, the Voluntary Carbon Market operates on a voluntary basis. It provides a means for individuals and businesses to take responsibility for their carbon footprint and contribute to global efforts to reduce greenhouse gas emissions.
Participants in the VCM can invest in a wide range of projects that aim to reduce carbon emissions or sequester carbon dioxide from the atmosphere across the globe.
These projects can include renewable energy initiatives, reforestation and afforestation projects, energy efficiency programs, methane capture projects, and more. By purchasing carbon credits from these projects, participants effectively neutralize their own carbon emissions and support sustainable development.
The Voluntary Carbon Market operates based on the concept of carbon credits.
Each carbon credit represents one metric ton of carbon dioxide equivalent (CO2e) that has been avoided or removed from the atmosphere.
These credits are generated by projects that have been independently verified and certified according to international standards, such as the Verified Carbon Standard (VCS) or the Gold Standard. The credits can then be bought and sold on the Voluntary Carbon Market.
The Importance of Climate Action
In recent years, the urgency of addressing climate change has become increasingly evident.
Rising global temperatures, extreme weather events, and the loss of biodiversity all serve as stark reminders of the impact of human activities on the planet. It is clear that meeting the Paris Agreement target of staying below 1.5°C warming is not just a desirable goal, but an absolute necessity.
While businesses should take responsibility over the emissions of their operations, and decarbonize internally when possible, the 1.5°C goals won’t be feasible in time without the VCM as part of the toolkit .
By enabling individuals and businesses to invest in carbon reduction and removal projects beyond their value chain, it provides a mechanism for reducing greenhouse gas emissions on a global scale.
As businesses embark on their decarbonization journey, the VCM empowers participants to take immediate action beyond their value chains and contribute to the transition to a low-carbon economy.
Furthermore, the VCM promotes sustainable development by directly supporting projects that have positive social and environmental impacts. These projects not only reduce carbon emissions but also create jobs, protect ecosystems and their biodiversity, and improve the well-being of communities.
By participating in the Voluntary Carbon Market, individuals and businesses can make a tangible difference in the fight against climate change while simultaneously driving positive change in society.
The Role of the VCM in Addressing Climate Change
The Voluntary Carbon Market plays a vital role in addressing climate change by incentivizing and financing projects that reduce greenhouse gas emissions and/or remove carbon from the atmosphere.
Projects are often categorized by the way in which they contribute to addressing climate change (avoidance and removal):
Avoidance
These projects prevent carbon from entering the atmosphere.
They can take the form of renewable energy projects that contribute to a cleaner energy mix, projects that destroy GHGs at the source like ozone-depleting substances or carbon capture from power plants, projects that increase energy efficiency in industrial processes, or even projects that prevent forests from being deforested and reducing the carbon pools. These are just a few examples.
Removal
These projects enable the sequestration of carbon from the atmosphere.
This can be enabled by nature-based solutions that leverage store carbon in biomass and soils. More recently, there has been an interest in technologies that remove carbon from the atmosphere and either store or utilize it, like direct air carbon capture (DAC), enhanced weatherization, etc.
How the Voluntary Carbon Market Works
The Voluntary Carbon Market operates through a series of steps that involve the generation, verification, and trading of carbon credits.
This process ensures that the carbon credits are legitimate, transparent, and accurately represent the carbon reduction or removal activities of the projects.
1.Project development
Project developers identify and implement initiatives that have the potential to reduce or remove carbon emissions.
They develop projects that generate carbon credits with specific vintages, denoting their year of issuance and a specific delivery date indicating its availability on the market. There are about 400 approved methodologies for this purpose.
These projects can be located anywhere in the world and can vary in size and scope, covering a wide spectrum. The role of the project developer is to make sure that a project is aligned with the standard it will register the project under (e.g. VCS or Gold Standard), ensure financial feasibility and also engage with the respective stakeholders associated with the project.
2.Validation process
During the verification process, independent third-party auditors assess the project’s design, implementation, and monitoring protocols. This process ensures the project’s alignment with chosen methodologies and standards. The auditor evaluates baseline scenarios, monitoring strategies, and computations for emission reduction.
Once the project has been verified, a report is generated, and it receives formal registration status.
If the project meets all the requirements, it is issued a certain number of carbon credits based on the amount of carbon dioxide equivalent that has been avoided or removed.
Offset resale is possible until retirement, which is tracked by registries to avoid double-sales.
3.Purchase process
Once the carbon credits are issued, they are listed on their respective registry and can be traded. Market participants, such as individuals, businesses, and governments, can then purchase these credits to offset their own carbon emissions.
Note that credits can be traded as futures before their verification and issuance. However, this presents a higher risk because they are still yet to finalize the cycle.
The price of a carbon credit depends on multiple factors like project type, location, vintage, co-benefits, and market dynamics.
The credits can be bought and sold through various marketplaces like Patch, exchanges like ACX or CBL, brokers, or registries. The price of the credits is determined by supply and demand dynamics, as well as the quality and credibility of the projects.
At times, project developers secure credit buyers, but brokers facilitate most transactions. They bid on bulk offset credits from verified projects, keeping an inventory for diverse clients. Brokers also assist clients in creating portfolios aligned with their objectives.
While integrity initiatives like ICROA, and now ICVCM, require a certain degree of transparency and access to project documents and credit tracking, prices are usually known only to buyers and sellers.
It is important to note that participants in the Voluntary Carbon Market need to conduct due diligence to ensure that the carbon credits they purchase are of high integrity and have been verified by reputable certification bodies.
The Benefits of Participating in the Voluntary Carbon Market
With a strong integrity and impact-oriented strategy, any organization or corporation can benefit from participating in the carbon market as part of their path to net-zero.
The impacts can go beyond carbon emissions reduction and can have a positive impact on reputation, brand value, and stakeholder engagement.
Corporations can use carbon credits to support their path to net-zero. They can also help support projects across the world that are providing real and tangible benefits to their communities, while contributing to the attainment of the Sustainable Development Goals.
Choosing the Right Portfolio
When selecting carbon offset projects, it’s crucial to consider their quality, co-benefits and risks.
Quality
Additionality is a very important factor in determining the quality of a project. It means that the project would not have happened without the financial support from the carbon market, ensuring that the offset is making a genuine difference.
Credibility is another important point for quality. It refers to the project’s adherence to recognized standards and methodologies, ensuring the accuracy and transparency of emission reductions.
Certification bodies like BeZero and Sylvera can help market participants more easily assess credit quality and risks.
Co-benefits
They are the positive social and environmental benefits that a project delivers beyond reducing greenhouse gas emissions. These can include job creation, biodiversity conservation, waste reduction, gender equity, etc.
Risk
When choosing the right carbon offset projects, it’s vital to consider risks from multiple angles, including project integrity, public perception, and issuance concerns.
Evaluating these factors ensures credibility, maintains public trust, and guarantees the effectiveness of emission reduction efforts.
Trustable Tools in the Voluntary Carbon Market
In the VCM, ensuring a sustainable impact is paramount, and this can only be achieved through the use of trustworthy tools such as Viridios AI (VAI).
VAI plays a crucial role in the VCM by providing access to carbon credit pricing, valuations and information on projects across multiple registries including their contributions to sustainable development, enabling transparency and access to data to make informed decisions in the transition to net zero.
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About the authors:
María Elisa Vollmer is Head of Project Data at Viridios AI. She has five years of experience in sustainability consulting for the public, private, and non-profit sectors. Her diverse background blends international development, environmental policy, and economics. She has a Master’s in Applied Economics from George Washington University and an undergraduate degree in Environmental Policy and Planning from Virginia Tech.
Mariana Marins is Content Marketing Manager at Viridios AI. Mariana has 9 years of experience in marketing across different markets and companies, both in the non-profit and private sectors. Her background includes marketing and GTM strategies, CX, inbound marketing, SEO, and content production.She holds a Bachelor’s degree in Communications/Marketing, a MBA in Business Management and Design Thinking, and an Innovation Leadership Program Certificate from The Hebrew University of Jerusalem.