Carbon Markets: Compliance Vs. Voluntary
What are Carbon Markets?
In the process of moving the world to net-zero greenhouse gas emissions (GHG), the development of carbon markets took shape. These markets allow companies, NGOs, and even individuals to trade emissions. This is done in the form of carbon credits, a verified and validated unit, where one credit equals one metric ton of carbon dioxide equivalent avoided, reduced, or removed from the atmosphere. Two markets exist where these units are traded, compliance markets and voluntary markets. Mitigation Partners, Inc. (MPI) is looking at what these two markets are and how they are regulated.
Compliance Carbon Markets
Compliance markets are generated by regulatory requirements and policies set by governments. Whether that be a national government, international body, or even on a regional scale. For example, the state of California has a cap-and-trade system for emissions. The state’s government sets an emission cap (allowances) for regulated businesses, which emitters should not exceed. If emitters go over the cap they can offset their overage through the purchase of carbon ‘offset’ credits. These credits can be purchased from other emitters who did not hit the emissions cap, further incentivizing emitters to fall under the cap. Besides California, the European Union and China are some of the other major carbon compliance markets. The figure below gives a good representation of how the compliance market system works.
Voluntary Carbon Markets
As much as the name suggests, voluntary carbon markets are not formally regulated by governmental entities. Instead of this, a few nonprofit organizations, including Verra, have set international carbon standards. These standards ensure the carbon credits for sale are ‘high-quality’, i.e. environmentally conscious and reduced GHG emissions.
Due to no governmental involvement, these markets allow participants from all sectors of the economy to access and offset their emissions. Similarly, industries can participate in the market as a whole, as seen with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Pledging all airline operators participating in CORSIA to offset their emissions that go above the 2019 base level. Voluntary markets allow for greater flexibility than compliance markets do while allowing more industries to participate and reach their emission goals.
More Resources
Listed below are resources MPI recommends to gain a more complete picture of carbon markets and how they operate:
MPI’s carbon market and credit experts are available for questions, comments, and concerns.
Mitigation Partners, Inc. Founders Dax Dickson & Tory Christensen
Let’s get started!
Contact Mitigation Partners, Inc. (MPI) today with your ecological restoration and carbon offset needs. Our team is ready with answers and expert services to bring your vision to life.
