The following information – put together by Climate Focus and the Climate & Land Use Alliance – serves as a primer for those engaged in the voluntary carbon market (VCM). It seeks to facilitate a better understanding and increased strategic engagement of governments in the VCM. The target audiences of this primer are government decision-makers in developing countries and advisors to decision-makers. We thank the authors for their contributions. You can read more detail at https://vcmprimer.org/
1: What is the international or “voluntary” carbon market (VCM)?
The VCM is where private individuals, corporations and other actors issue, buy and sell carbon credits outside of regulated or mandatory carbon pricing instruments. The VCM aims to mitigate climate change by creating space for private actors to finance activities that remove greenhouse gas (GHG) emissions from the atmosphere or reduce GHG emissions associated with industry, transportation, energy, buildings, agriculture, deforestation, or any other aspect of human life.
2: What is the role of governments in the market?
Governments engage with the VCM by instituting policies, regulations, and safeguards that influence VCM activities, creating enabling environments that facilitate VCM projects or programs, and sponsoring VCM projects or programs within their territories.
3: How does the market link to the Paris Agreement and its Article 6?
The VCM is governed by independent standards and not by international or national regulatory bodies. However, projects and programs developed under the VCM may support countries in achieving their commitments under the Paris Agreement. To do so, VCM activities will need to comply with the Paris Agreement Article 6 rules that were finalised in November 2021.
4: How are greenhouse gas reductions and removals accounted for?
Transparent and comparable greenhouse gas (GHG) accounting is essential to ensure the credibility of VCM activities. Robust GHG accounting follows common principles and is supported by credible and robust standards. GHG emission reductions and removals from VCM projects are accounted for at the activity level and used to meet climate (e.g., net zero or carbon neutrality) targets of companies. Governments that engage in jurisdictional programs, in particular in Reducing Emissions from Deforestation and Degradation Plus (REDD+), account for GHG emission reductions and removals associated with land use change in a certain area.
5: What is a carbon credit?
A carbon credit is a tradable unit that represents one ton of greenhouse gas (GHG) emissions reductions or removals. Carbon credits in the VCM are generated by the activities of projects and programs that are certified by standards. The credits are purchased by companies, individuals, and other entities to offset GHG emissions or otherwise contribute to emissions abatement. The prices of carbon credits are determined by the types and quality of VCM activities and the demand for credits from those activities.
6: What is the role of carbon standards?
Carbon standards are central to the operation of the VCM. Carbon standard organizations provide and administer the rules and requirements for VCM projects and programs, certify and issue carbon credits, and facilitate the trade in carbon credits.
7: How are carbon credits generated?
Carbon credits are tradable, certified greenhouse gas (GHG) emission reductions or removals. Carbon standards issue carbon credits to registry accounts. Each VCM carbon credit represents one ton of GHG emissions removed from the atmosphere or one ton of GHG that has not been emitted, as compared to a baseline.
8: How are carbon credits used?
Carbon credits in the VCM are used to offset greenhouse gas (GHG) emissions beyond any offsetting or GHG reductions and removals mandated by policy. Carbon credits may also be purchased and retired without offsetting, which drives reductions in overall GHG emissions and may enable buyers to claim other social and environmental contributions.
9: How are carbon and community rights considered?
Carbon rights are important in the VCM because they determine who can participate or benefit from VCM activities. Carbon rights are assigned based on control of an asset or control of a mitigation activity. The recognition of carbon rights is particularly important for Indigenous Peoples and local communities (IPLCs) who are the statuary or customary owners of many landscapes where VCM activities are developed. IPLCs may exercise their rights in the VCM as project proponents or partners, through benefit sharing arrangements, and through consultation processes.
10: How are benefits shared with local communities?
Local communities, Indigenous Peoples, landowners, and other stakeholders involved in carbon projects or programs may receive benefits directly from the sale of carbon credits or through benefit sharing arrangements. Benefit sharing arrangements identify how monetary and non-monetary benefits will be allocated to which stakeholders and how the distribution will take place.
11: How does the market support nature conservation?
Nature-based solutions (NbS) are actions to protect, sustainably manage, and restore ecosystems with their benefits for humans and nature. Identified as one of the most important and cost-effective tools to mitigate climate change while providing important social, economic, and ecological benefits, NbS could deliver about one-third of the emission reductions and removals needed to keep warming below 1.5°C.