Voluntary Carbon Market: 101
As the spectre of climate change looms ever larger, voluntary carbon markets (VCMs) have emerged as an innovative—if imperfect—mechanism for addressing excess greenhouse gas (GHG) emissions. These markets allow companies and individuals to offset emissions by purchasing credits, and financing projects that either reduce or remove atmospheric carbon. While VCMs represent an unregulated arena in 2024, they are increasingly considered a critical complement to mandated efforts to limit global warming.
Among the myriad approaches to carbon offsetting, carbon removal projects have garnered attention for their potential scalability, permanence and critical role in achieving Net Zero. This insight dissects the inner workings of the VCM, contrasts it with compliance markets, and evaluates the challenges and opportunities inherent in carbon removal as a cornerstone of climate action.
Understanding the Voluntary Carbon Market
What is the Voluntary Carbon Market?
At its core, the VCM is an unregulated platform for trading carbon credits. Participation is driven not by legal mandate but by a confluence of corporate responsibility, reputational considerations, and stakeholder expectations. Through these markets, entities can fund projects aimed at reducing, avoiding, or removing carbon emissions, thus bridging the gap between existing capabilities and their climate ambitions.
A carbon credit within this market typically represents the reduction, avoidance, or removal of one metric tonne of CO2 equivalent. For companies unable to fully decarbonise their operations in the short term, the purchase of such credits offers a pragmatic pathway to achieve Net Zero or carbon neutrality goals.
What is the difference between the Voluntary Carbon Market and the Compliance Market?
In contrast to the VCM, compliance carbon markets are strictly regulated by governmental or international bodies. These systems typically operate on a cap-and-trade basis, whereby emissions are capped at a predefined level, and organisations are allocated or must purchase allowances to emit within those limits.
The European Union Emissions Trading System (EU ETS), California’s cap-and-trade programme, and New Zealand’s emissions trading scheme are prominent examples of compliance markets. Their finite supply of allowances, designed to tighten over time, creates an economic incentive for emissions reductions.
VCMs, however, eschew this rigidity. They operate on a project-based system, with credits generated by initiatives ranging from afforestation to direct air capture. In the absence of a fixed supply, the creation of credits is theoretically limited only by the scalability of these projects. This unregulated nature allows companies to act beyond their legal obligations, but it also introduces variability in quality and accountability.
The Role of Carbon Credits in Voluntary Carbon Markets
A carbon credit represents the avoidance, reduction, or removal of one metric tonne of CO2 or equivalent GHGs. These credits underpin the VCM, supporting diverse initiatives, from renewable energy to soil carbon sequestration.
The calculation of credits relies on comparing emissions under a baseline scenario to those achieved through a project. However, without robust oversight, discrepancies in accounting are not uncommon. The absence of regulatory governance places a premium on independent standards and third-party verifications, which are defences against fraud and inflated claims.
The Role of Carbon Removal in the Voluntary Carbon Markets
What is Carbon Removal?
Carbon removal entails extracting CO2 from the atmosphere and securely storing it to prevent re-entry into the carbon cycle. This can occur through natural methods—afforestation, soil carbon sequestration, biochar—or technological approaches such as direct air capture with storage (DACCS) and bioenergy carbon capture and storage (BECCS).
Why does Carbon Removal matter?
While reducing emissions is essential, due to our inaction over the last few decades, it is no longer sufficient to prevent the global temperature from rising above 1.5 degrees C (2.7 degrees F) above pre-industrial levels. We must remove carbon dioxide from the atmosphere, and a lot of it. Quickly.
To meet the ambitious targets of international climate agreements like the Paris Accord and prevent the negative implications of climate change, the world will need to reach Net Zero carbon emissions by 2050 and remain net negative thereafter.
Today, humanity produces more than 35 billion tons of CO2 each year. Earth's natural sinks, such as the ocean, plants, and soil, soak up and store just under half of that. However, as global temperatures rise, the ability of natural carbon sinks to absorb and store carbon diminishes.
To be Net Zero today, we must remove around 20 billion tonnes of carbon dioxide each year, according to the MIT Climate Portal. In 2023, a technology-based carbon dioxide removal project removed and permanently stored ~10,000 tons of GHG emissions from the atmosphere. That's 0.0000005% of the carbon removal capacity required.
Mechanisms of Carbon Removal in the Voluntary Carbon Market (VCM)
Natural Carbon Removal methods
Afforestation and Reforestation: Planting trees on degraded or unused land can serve as a carbon sink, though permanence is vulnerable to deforestation or climate-related impacts.
Soil Carbon Sequestration: Agricultural practices that improve soil health, such as no-till farming, enhance its ability to store carbon.
Biochar: This carbon-rich material, created by heating organic matter in low-oxygen environments, offers long-term storage when applied to soil.
Technological Carbon Removal methods
Direct Air Capture and Storage (DACCS): Using chemical processes to extract CO2 directly from the atmosphere, DACCS offers the potential for permanent storage but remains prohibitively expensive at scale.
Bioenergy Carbon Capture and Storage (BECCS): By combining biomass energy production with CO2 capture and storage, BECCS presents a solution for net-negative emissions.
Ocean-based Methods: Techniques such as ocean alkalinity enhancement aim to increase the ocean’s capacity to absorb carbon.
Benefits and Challenges of Carbon Removal Projects
Benefits of Carbon Removal
Permanence and Scale: Carbon removal, particularly through technological means, promises enduring sequestration of atmospheric CO2.
Ecosystem Co-benefits: Natural methods enhance biodiversity, soil health, and water retention, delivering socio-economic advantages to local communities.
Challenges of Carbon Removal
Verification Gaps: Ensuring the integrity of credits is a persistent challenge, necessitating rigorous monitoring and third-party validation.
High Costs: DACCS and BECCS require substantial investment to overcome cost and infrastructure barriers.
Land Use Competition: Afforestation projects must navigate tensions between conservation, food production, and community needs.
Ensuring Integrity in the Voluntary Carbon Market (VCM)
Without regulation, the integrity of the VCM hinges on robust certification and due diligence. Standards such as Verra’s Verified Carbon Standard and the Gold Standard offer frameworks for assessing the environmental and social impacts of projects. Yet conflicts of interest—where certifiers benefit financially from project approvals—undermine confidence in these markets.
Buyers must navigate these complexities with care, ensuring that purchased credits represent genuine, additional, and permanent carbon removal. As corporate and governmental scrutiny intensifies, the emphasis will inevitably shift toward greater transparency and accountability.
Conclusion: Embracing Carbon Removals to Achieve Climate Targets
The potential of VCMs to drive meaningful climate action depends on scaling high-quality carbon removal solutions. This requires substantial investment, policy intervention, and international cooperation to align incentives and accelerate innovation.
For forward-thinking companies, engaging with the VCM is not just an ethical imperative but a strategic one. By incorporating carbon removal into sustainability strategies, organisations can demonstrate leadership while positioning themselves for a future where regulatory and market demands for climate integrity intensify.
The Voluntary Carbon Market, for all its imperfections, offers a glimpse into a future where economic growth and environmental stewardship coalesce. Harnessing its potential requires vigilance, innovation, and above all, an unwavering commitment to quality.
