Voluntary v. mandatory carbon credit market

carbon credit market

In a brand new sector that is evolving rapidly, understand where your company fits in the carbon credit market structure.

What is the difference between the mandatory and voluntary carbon credit market?

As its name suggests, the mandatory market is used by companies and governments that are legally mandated to offset their emissions.

The countries that have joined these markets are those that have accepted and adopted the emission limits established in the Framework of the United Nations Convention on Climate Change. (UNFCCC)

The voluntary carbon market, on the other hand, operates outside the compliance markets but in parallel, allowing private companies and individuals to purchase carbon credits on a voluntary basis.

Who regulates the mandatory carbon credit market?

This market is regulated through international, regional and sub-national carbon reduction schemes, such as the Clean Development Mechanism under the Kyoto Protocol, the European Union Emissions Trading Scheme (EU-ETS) and the California Carbon Market.

Each ton of CO2 is measured in carbon credits or CERs (Certified Emission Reductions). These credits or CERs are generated in the implementation phase of the project; and are issued once the reduction has been credited.

Projects wishing to offer CERs in the market will need to have their emission reductions validated by Designated Operational Entities (validators and verifiers) and registered by the CDM Executive Board to ensure that real and measurable emission reductions are achieved.

How does the voluntary carbon credit market work?

The main objective for acquiring Verified Emission Reduction (VER) credits, is to neutralize the carbon footprint, motivated mainly by Corporate Social Responsibility (CSR) and public relations.

Other reasons are considerations such as certification, reputation and environmental and social benefits.

Companies and individuals can acquire or buy carbon credits directly from projects, companies or carbon funds. However, as in the regulated market, all VERs must be verified by an independent third party and must be developed and calculated according to one of the existing VER standards.

Basically, the main difference is that a VER (voluntary market), unlike CERs (mandatory market), cannot be used to achieve obligations under the Kyoto Protocol compliance regime. However, a CER can be accepted by entities wishing to voluntarily offset their carbon footprint.

ClimateTrade operates within both the voluntary offset market and the mandatory market. We have a wide portfolio of projects with credits of all types and a professional team with extensive experience in this field.


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