What is a carbon market? #
Carbon offsetting began in the late 1980s. The first and largest carbon offset program was established under the Kyoto Protocol as a mechanism to allow countries to meet emission reduction obligations by investing in mitigation and reduction in less developed countries.
Carbon markets exist under voluntary and mandatory compliance schemes.
The voluntary carbon market encompasses all transactions that are not retired into an active regulated carbon market. The buying pressure of the voluntary market is driven by entities taking responsibility for offsetting their own emissions. Buyers may also purchase pre-compliance offsets before emissions reductions are mandated.
Voluntary buyers are driven by a variety of considerations related to corporate social responsibility, ethics, and reputation.
The involuntary carbon market
The mandatory carbon market is created and regulated by regional, national or international carbon reduction policy. Carbon offsets are purchased and serve as an alternative compliance mechanism to direct reductions or allowances. These credits typically experience commodity pricing, where all offset credits in a particular program are priced based on supply and demand.
What is a carbon offset? #
A carbon offset broadly refers to a reduction in GHG emissions or an increase in carbon sequestration. A carbon offset is a transferable instrument certified by a government or independent verifying body to represent at least one metric tonne of additional, permanent and unclaimed carbon emissions being removed or reduced. Carbon offsets are less commonly listed with a time modifier. Such as Carbon TonDecade. The time variable is a useful addition to carbon credits as it ensures the duration of the offset.
What is the most effective type of carbon offset? #
It can be difficult to quantify a precise effect of a particular carbon offset scheme. Typically, when talking about the quality of a carbon offset, and it should be created by activities that do not significantly contribute to social or environmental harms. The level of confidence that the carbon credit will fulfill its use as a true offset of carbon emission is what is being referenced.
What is additionality? #
Greenhouse gas reductions are additional if they would not have occurred in the absence of a carbon offset market. If the reduction had occurred without any prospect for project owners to sell the carbon offset, they are not additional.
Permanence #
A standard convention is that carbon only needs to be kept out of the atmosphere for 100 years to be considered permanent. For most kinds of carbon offset projects, reversals are either physically impossible or extremely unlikely.
Example: In a foresty project where carbon is sequestered in trees and soils, Co2 emissions will be reduced. However, if a fire burns these trees, some or all of the carbon may be (re)emitted, leading to a reversal.
