Voluntary Carbon Markets
The offset side: how voluntary credits are created and sold.
Summary
Ricardo Bayon, Amanda Hawn and Katherine Hamilton edited this practitioner guide to voluntary carbon markets, meaning emissions offsets purchased outside any regulatory compliance obligation.
The content covers how the market works: the project types that generate credits including forestry, renewable energy, methane capture and efficiency projects; the standards and certification bodies that verify them; the concept of additionality, meaning whether the emission reduction would have occurred without the credit revenue, which is the market's central and most difficult question; permanence, meaning whether a forestry credit remains valid if the forest burns; leakage, meaning whether protecting one forest displaces the logging elsewhere; and the registries and trading infrastructure.
It also covers the buyers and their motivations, the pricing and its enormous variation between project types, and the relationship between voluntary and compliance markets. The book dates from 2009, and the subsequent decade produced substantial evidence that many issued credits did not represent real additional reductions, particularly in forestry, with investigations of major certifiers finding large shares of credits overstated. Readers should treat the book as a description of how the market was designed to work rather than as evidence that it does. The additionality and permanence problems it identifies are exactly the ones the later evidence exposed.
Key takeaways 7
- Additionality, meaning whether the reduction would have occurred without the credit revenue, is the market's central and least tractable question.
- Permanence problems mean a forestry credit can be invalidated by a fire or by a change of land use after the credit is sold.
- Leakage means protecting one area can displace the emitting activity elsewhere, producing no net reduction.
- Credit prices vary enormously between project types, which reflects buyer preference rather than tonnes of carbon.
- Certification standards were developed by bodies whose revenue depends on the volume of credits they certify.
- Later evidence found that large shares of issued credits, particularly in forestry, did not represent real additional reductions.
- The book describes how the market was designed to work rather than establishing that it does.
Who should read it
Buyers and investors in carbon credits who want the market's design and its structural problems, read against the subsequent evidence on credit quality.
Where it sits in the reference 2
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