FCU|Carbon Markets
Learn the market types, carbon registries, and developers.
Carbon registries & markets
Because carbon offsets are purchased by another entity to compensate for emissions made elsewhere, all carbon offsets must be real, additional, verifiable, permanent, and enforceable. More details can be found on FCU’s carbon program basics page.
The rules for these criteria are set by detailed protocols created by independent carbon registries.
These registries monitor and supervise the listing, reporting, verification, and tracking of carbon offsets. The protocols or guidelines are specific for each project type – so each registry will have a specific protocol for Increased Forest Management (IFM), afforestation/reforestation, and avoided conversation, as well as many others for other project types outside of forestry.
Additionally, the protocols for IFM for one registry may well be different than the protocol for IFM for a different registry. The most common registries are the American Carbon Registry (ACR), Climate Action Reserve (CAR), Verified Carbon Standard (Verra) and the Gold Standard.
Voluntary Carbon Markets
For the private sector, Voluntary Carbon Markets (VCMs) are a valuable tool to tackle climate change in fact for the first time in 2021 annual trading of carbon credits exceeded $1 billion. With that much capital exchanging hands, it is no surprise that the market is complex and comes with many nuances.
Voluntary carbon markets allow carbon emitters to offset their unavoidable emissions by purchasing carbon credits emitted by projects targeted at removing or reducing GHG from the atmosphere.
Carbon Offsets – Carbon offsets are tradeable instruments that allow companies and countries to compensate those hard-to-abate emissions by investing in projects which avoid or remove emissions from the atmosphere elsewhere
Each credit – which corresponds to one metric ton of reduced, avoided or removed CO2 or equivalent GHG – can be used by a company or an individual to compensate for the emission of one ton of CO2 or equivalent gases. When a credit is used for this purpose, it becomes an offset. It is moved to a register for retired credits, or retirements, and it is no longer tradable.
With the increased urgency to spearhead climate strategies and the growing interest in Voluntary Carbon Markets (VCMs), it’s no wonder the market has experienced rapid growth over the past five years. In 2022, market value is expected to reach $2 B and predictions for 2030 reach $40 B.
Compliance Markets
Compliance markets arise when laws or regulations are enacted that limit or cap the quantity of GHG emissions people and firms can emit, such as cap-and-trade programs.
- The emitters can either reduce GHGs emissions to the atmosphere or buy carbon credits from sellers who are sequestering GHGs from the atmosphere.
- In the US, the main compliance market is the California cap and trade program administered by the California Air and Resource Board.
Types of Carbon Offset Projects
Examples of projects that produce carbon offsets credits are forest restoration, community-based projects (e.g. replacing stone fires with cookstoves), or renewable energy projects, such as building solar plants that replace coal-fired power plants.
There are two main categories of carbon offset projects. Avoidance projects, which elude releasing emissions like renewable energy. Besides, Removal projects, sequester carbon through reforestation or Direct Air Capture. Both types of projects are essential for humanity to achieve a net-zero future.
There are four participants in VCMs
Project Developers
Create the carbon offset project.
Standard Bodies
Review the projects against criteria and operate a registry to allow the issue and retirement of the carbon offsets.
Brokers
Provide advice and facilitate credit transactions between buyers and project developers.
End Users
Purchase the credits. They include corporates looking to achieve their net-zero commitments.