December 12, 2022
The Voluntary Carbon Market (VCM) is a rapidly expanding sector focused on providing businesses and individuals with the opportunity to reduce and offset their carbon emissions.
The voluntary carbon market is a market that allows individuals, businesses, and organisations to purchase carbon credits from projects that reduce or remove greenhouse gas emissions. These carbon credits are sold on the open market and can be used to offset the purchaser’s carbon footprint as there is an equivalent amount of emissions reduction elsewhere.
The VCM is steered by 10 principles founded by the Voluntary Carbon Market Integrity Initiative (VCMI). These principles are as follows:
These principles are the foundation of the VCM's overarching vision: A world firmly on track to 1.5 degrees and net zero emissions by mid-century, achieved through a just transition that enhances equality and sustainable development for all.
Carbon Offsetting Projects: Invest in projects that reduce greenhouse gas emissions, such as reforestation through forestry removal projects.
Carbon Capture and Storage (CCS) Projects: These projects involve capturing carbon dioxide from sources such as power plants and industrial sites and storing it in underground geological formations to prevent it from entering the atmosphere.
Climate Change Adaptation Projects: Investing in projects that help communities adapt to the changing climate, such as water conservation, improving agricultural practices, and developing early warning systems.
Carbon Credits Trading: Investing in carbon credits trading platforms to facilitate the buying and selling of carbon credits.
Carbon Taxation: Invest in projects that advocate for adopting carbon taxes to incentivise emissions reductions.
Renewable Energy Projects: Invest in projects that generate renewable energy, such as wind, solar, and geothermal.
Wastewater Treatment Projects: Invest in projects that reduce the number of greenhouse gases released from wastewater treatment plants.
Sustainable Land Management Projects: Invest in projects that promote sustainable land management practices, such as sustainable forestry and soil conservation.
The carbon offset market in New Zealand is estimated to be worth approximately NZ$18 million, with most offsets coming from forestry and agriculture projects. According to Morgan Stanely, the global voluntary carbon-offset market is expected to grow from $2 billion in 2020 to around $250 billion by 2050. The growing demand for carbon credits from corporate buyers and increasing voluntary offset purchases from individuals are key factors driving the market’s growth. Furthermore, stringent environmental regulations and the growing adoption of renewable energy sources contribute to market growth.
The price of carbon credits in the voluntary carbon market varies greatly and is typically determined by market forces, such as supply and demand. Prices can range from as low as NZD$1.50 per ton to as high as NZD$100 per ton. The average price of voluntary carbon credits is around NZD$ 12.50 per ton. Prices also fluctuate depending on the type of project the credit is associated with, how it is verified, and the quality of the carbon offset.
The voluntary carbon market is priced based on the demand and supply of voluntary emissions reduction credits (VERs). These credits are priced based on the underlying cost of the emission reductions, the expected cost of similar offsets in the compliance market, and other market factors. As the demand for voluntary credits increases, the price tends to rise. Other influences include the availability of carbon credits, government policies, and technological innovations. Additionally, the cost of carbon credits can be affected by economic and political trends, such as changes in international trade agreements and the supply and demand of carbon credits on the global market.
Individuals, businesses, and organisations choose to participate in the voluntary carbon market for a variety of reasons:
Sustainability goals: To meet sustainability goals within a company or organisation, and demonstrate a commitment to sustainability and reducing their carbon footprint.
Values: to support environmental initiatives that align with company and stakeholder values.
Reputation: To improve their public image for customers who are looking for a socially responsible business.
Competitive advantage: To differentiate themselves from competitors.
Profit: To increase financial returns.
Offset: To offset their own carbon emissions and reduce their environmental impact.
There is no sole agency that regulates the voluntary carbon market. It is instead governed by various self-regulating organisations, such as the International Emissions Trading Association (IETA), The Gold Standard, and The Climate Group. These organisations set standards for trading carbon credits and ensure that valid emissions-reduction projects back the credits.
Scope and Coverage: The regulatory carbon market is a mandatory system set up by governments to reduce greenhouse gas emissions and is usually applied to large-scale emitters such as power plants and factories. In contrast, the voluntary carbon market is where companies and individuals purchase carbon offsets from projects that reduce emissions, but the purchases are not required by law.
Size and structure: The regulatory market is typically larger in scale and has more structure, while the voluntary market is more flexible regarding its operations.
Compliance: The regulatory carbon market requires companies to comply with government-mandated carbon reduction targets. The voluntary carbon market does not require companies to meet specific targets but allows them to purchase carbon offsets to reduce their carbon footprint voluntarily.
Cost: The regulatory carbon market typically involves higher costs for emitters, as compliance with government-mandated targets usually requires the purchase of carbon credits or permits. In the voluntary carbon market, the prices are generally lower, as companies are free to choose the projects from which they purchase carbon offsets.
The voluntary carbon market is an essential and beneficial tool for reducing global emissions. It allows individuals, businesses and organisations to invest in carbon credits to offset their emissions. By doing so, they are helping to reduce their environmental impact and supporting projects working towards a more sustainable future. The voluntary carbon market effectively reduces emissions and contributes to global efforts to fight climate change. It is an integral part of the overall effort to reduce global emissions and help to build a more sustainable future.
