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The voluntary market

In addition to the compliance market, meaning the market whose demand is fed by the binding emission reduction targets of the industrialised countries, a market for voluntary offsetting of greenhouse gas emissions has also developed in recent years. This newer market enables businesses and individuals to reduce their carbon footprint voluntarily. For example, German provider atmosfair makes it possible for private customers to offset their air miles from private travel and business trips.

The voluntary carbon market emerged in parallel to and as a complement of the compliance market. It was commonly defined in contrast to the compliance market: the voluntary market, without any international oversight, consists of privately organized carbon crediting schemes which supply mitigation units to private buyers – corporations or individuals – who want to compensate their carbon footprint for ethical reasons or reasons of corporate social responsibility, whereas on the compliance market supply was generated by international mechanisms (CDM and JI) and demand was driven by national mitigation obligations under the Kyoto Protocol or, as a derivative thereof, by private corporations regulated under the EU ETS. In recent years, though, the global carbon market has seen considerable fragmentation. The black and white definition of voluntary versus compliance carbon market is no longer meaningful as various shades of grey have emerged.

Buyers need not necessarily use certificates that meet the strict international rules laid down by the UNFCCC. A number of private initiatives have responded by developing their own certification mechanisms. Pioneers in this field include the Verified Carbon Standard (VCS) and the Gold Standard. These standards each have their own requirements regarding the design and implementation of emission reduction activities. Some focus purely on the climate impact of the certified projects, while others take a broader approach which includes their social and environmental impacts. Combinations of different standards are also possible and are frequently used. Certificates generated by projects with especially high social and environmental additionality are particularly attractive to voluntary market buyers.

Since the voluntary carbon market came into operation, approximately 1.2 billion tonnes of CO2e have been transferred. This is equivalent to the average annual emissions in Japan. Although the demand for certificates from the voluntary carbon market had dropped, in 2018 it reached an historical peak of almost 100 MtCO2e. Most certificates are bought by companies and in many cases, their engagement is driven by the desire to accept their corporate social responsibility (CSR) and position themselves as an environmentally conscious enterprise. German companies like Puma, Deutsche Post DHL Group and Allianz all use voluntary offsetting. The German government also voluntarily uses carbon certificates to offset the air miles accrued in business trips conducted by members of the government and ministry employees. In doing so, the government uses certificates generated under the CDM. The line between voluntary and compliance markets is becoming increasingly blurred. In many countries, it is now possible to use certificates from private certification schemes to meet obligations under public policy instruments – for example in Columbia. And for the planned CORSIA offsetting mechanism for international aviation, use of certificates from the voluntary market is also being discussed.

Overall, there has been a significant increase in demand for certificates from the voluntary market, not least due to growing awareness of climate change. Despite the rise in demand and potentially new opportunities for certificate use, the voluntary carbon market faces several new challenges: in the past, offsetting certificates were mostly generated in industry sectors not covered by a reduction target. Now, with the global reach of the Paris Agreement, this share of supply disappears, making it increasingly more difficult for suppliers of offsetting certificates to actually supply them. Given the challenges faced, various models are being discussed with a view to developing the voluntary market in a way that enables it to supplement the compliance market.

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