Introduction
The world is fighting to keep global temperatures low as current studies in climatic conditions show that the atmospheric concentration of carbon dioxide is increasing above the normal standard. In this regard, world leaders, environmentalists and scientists are increasing their efforts to reduce the concentration of atmospheric carbon dioxide below peak.
This suggests that the world must reduce consumption of fossil fuel, improve efficient use of energy and reorganize existing economic situations. We can only achieve such changes through committed national and international policies on emission of greenhouse gases (GHG).
Consequently, carbon offsetting has experienced a dramatic growth as a way of reducing emission of GHG. This mainly involves paying another party to reduce emission of GHG in other parts of the world.
This carbon offset will result into companies and industries seeking to compensate for their own release of GHG. Different entities now seek to offset GHG emissions using different methods such as buying carbon offset to reduce effects of GHG in the atmosphere. This is voluntary carbon trading.
In carbon offset markets, there are both voluntary and compliance programs to ensure carbon trading. Compliant markets exist under regional or international carbon reduction policies and schemes like the Kyoto Protocol and the EU Emissions Trading Scheme.
On the other hand, voluntary carbon market exists and operates outside any compliance. This has created chances for individual entities to buy carbon offsets on voluntary cases. Studies show that the growth in both compliance and voluntary carbon trading are gaining momentum, and are likely to increase in the coming decades and form economic forces (Bayon 2007).
According to WWF report, the current voluntary carbon offset can use the Clean Development Mechanism (CDM) as the standard for trading. This is because voluntary carbon market plays a crucial role in managing effects of global warming by reducing emissions of GHG (Kollmuss 2008).
The project has economic and environmental advantages, which have the potential to deliver sustainable management of concentration of GHG. Therefore, voluntary market gained popularity due to the following benefits.
Benefits
Voluntary carbon offsets provide environmental, political, and social advantages to individuals directly involved and the world, in general. Carbon offsets enable industry players to contain their costs at low levels. This provides opportunities for players to engage actively in voluntary trading of carbon offsets.
There are also investment opportunities available for voluntary entities where they are free to innovate, and create new methods in reducing emission of GHG.
Voluntary carbon offset markets also create asset conservation by providing opportunities where industries can buy offsets instead of replacing them before their period end. This conserves materials and provides opportunities for compliance with an effort to reduce effects of GHG emissions on the world.
Voluntary carbon offset markets also create asset conservation by providing opportunities where industries can buy offsets instead of replacing them before their period end. This conserves materials and provides opportunities for compliance with an effort to reduce effects of GHG emissions on the world.
Voluntary carbon markets have also raised awareness on the reasons to reduce emissions of GHG and at the same time, earned political benefits to some leaders who support environmental sustainability.
There are many voluntary carbon markets, which are on the increase. The voluntary carbon markets do not “relate with a cap-and-trade system or other form of regulation found in carbon offset compliance” (Hamilton 2008).
Offsets within the voluntary market are commonly come from projects that generate emission reductions i.e. they have additionality. They do not operate through formal trading markets or exchanges.
These include markets where individuals purchase GHG offsets to cover all or some of their annual carbon dioxide emission from their autos, plane trips, and or household energy consumption, among other emissions.
William and other authors note that companies which issue carbon offsets also make investments in GHG reduction plans through other renewable energy projects, such as solar and wind energy whereas other companies invest in methane gas from landfills, and coal mines (Jeffery R. Williams 2009).
Agricultural projects, such as management of animal waste may also produce methane, carbon consumptions in forests, and crop lands. The same firms that give that carbon offsets to customers may also buy verified carbon credits for resale.
Traders in voluntary carbon markets involve developers of GHG offset projects, investors and shareholders, or retailers who sale to individuals or organizations that buy from developers. Voluntary carbon market also has brokers and resellers who facilitate transactions.
Voluntary carbon market contains different buyers and sellers who have different motive for engaging in voluntary carbon trading. They range from individuals, groups, companies, or government. Some of these participants may have different motive for engaging in a voluntary carbon market.
These motives may be promoting environmental management, promotional and marketing strategy, profitability, or simply training to ensure enough experience for any possible changes on voluntary carbon estate. However, any trader who is conducting business for profit is likely to engage in high emission of GHG gases.
In most cases, trades in carbon offsets do not necessarily translate to less emission as traders continue to engage in business-as-usual activities. Unlike in compliance programs where there are guidelines and regulations, voluntary carbon offsets do not have any regulations.
However, there are guidelines where responsible parties will ensure that all projects result into a reduction in the emission of GHG. For instance, different parties developed the Voluntary Carbon Standard (CVS) to indicate standards of a voluntary carbon offset.
The CVS provides standards for forestry, agriculture and other agricultural land use. The projects CVS focus on include reforestation, agricultural land use, reforestation, enhancing forest management and reducing emissions of GHG.
The management in agricultural land use aims at improving the available carbon in soil and reducing the release of methane and other soil oxides.
Issues leading to increase in global GHG emissions
Voluntary carbon market also has its critics. There are reports which condemn the poor quality of carbon offsets and their projects in the voluntary carbon market. This is crucial for voluntary carbon market because some reports indicate that there are significant numbers of carbon offset projects, which do not contribute to the reduction in emissions of GHG.
Critics also argue that there is no equality and fairness in voluntary carbon market. This is because developed nations are constantly using carbon offsetting to enhance unsustainable lifestyles through providing funds for carbon projects in developing nations.
These scholars also note that most of these projects do not lead to any economic advantages to the host country. Some refer to this state as carbon colonialism. Others find loopholes in accounting methods used in voluntary carbon market.
They observe that the methods are inaccurate to support any claim of carbon offset additionality. Thus, this cannot lead to achievement of carbon neutrality. These scholars also note that voluntary carbon market lack transparency, any third-party standards and quality assurance.
In the recent past, industry players have tried to come up with the voluntary carbon offset standards, but this has not been successful. This is because every standard focuses on its own values. Thus, none of them has established itself as the standard in a voluntary carbon market. Some provide basis for standards just like compliance market standards.
On the other hand, some standards are lenient so as to reduce administrative tasks and enable as many carbon credits as possible and provide opportunities for many players to enter the market. At the same time, voluntary carbon market has standards with limited scope e.g. a standard may only focus in forestry.
In this context, some standards of measurements focus on certain areas, such as on social benefits of voluntary carbon market. Many voluntary carbon markets do not have certifications from any independent third-party that ensures quality. This affects the quality of carbon offsets traders deliver. However, the growing trend in voluntary carbon market is likely to change this scenario.
Additionality in voluntary offset projects occurs regardless of the availability of the fund for buying carbon offset credit. This flexibility has led to a number of rising cases and entry into voluntary carbon market. At the same time, there are cases of fraud as several cases of illegitimate claims increase.
In other words, voluntary offset market provides chances for accomplishing fraudulent activities (FTC 2007). This happens through creating a positive impression and reputation among offset investors and buyers. However, in reality there are little achievements with regard to the environmental benefits.
Some research shows that fraudulent activities have led to the recommendations that consumers need protection against fraud in voluntary carbon market. There were a number of people and organizations who bought carbon credits with no value. At the same time, these carbon projects did not bring any additionality to emissions of GHG.
Voluntary carbon market lacks mandatory cap-and-trade system. This implies that voluntary carbon market may bear no mandatory additionality in contribution to reduction in emissions of GHG. At the same time, voluntary carbon offset may also result into obstacles between compliance who bear costs and non-regulated offset dealers who incur no costs but instead make revenues.
Voluntary carbon offset has led to reduction in investment incentives. This is because voluntary offset is cheap offset that has no regulation and standards. Thus, it reduces the incentive among compliance polluters of GHG to create and invest in low-cost emitting technologies.
This leads to avoidance of critical changes needed effectively to tackle climate change. At the same time, double counting system involving more than one party and a country can lead to double standards, which create opportunities for the investing country. Therefore, the offset credit for the investing country is usually higher than the host country.
Lack of enforcement in a voluntary carbon market has led to an increase in market opportunities for traders. This is because we cannot observe, touch, or make wide projections as projects differ considerably. Hence, in future, compliance in a voluntary market would be difficult to realize.
Conclusion
This review has established that markets in voluntary carbon offsets actually lead to increases in global GHG emissions. Statistics indicate that voluntary carbon trade increased by more than 200 percent. This happens because of the general lack of regulation and compliance in voluntary carbon markets.
At the same time, several challenges in the sector directly lead to rising numbers of markets in voluntary carbon offsets as individuals and organizations seek to exploit business opportunities in voluntary carbon offset where players do not incur costs related to compliance. Unregulated nature of voluntary carbon offsets has attracted many investors some of which investor in projects with no worth and are fraudulent.
Reference List
Bayon, Hamilton. State of the Voluntary Carbon Markets. London: New Carbon, 2007.
Federal Trade Commision (FTC). FTC Reviews Environmental Marketing Guides, Announces Public Meetings. New York: FTC Publication, 2007.
Hamilton, Katherine. Offsetting Emissions: A Business Brief on the Voluntary Carbon Market, 2nd ed. San Francisco: Ecosystem Marketplace, 2008.
Kollmuss, Anja. Making Sense of the Voluntary Carbon Market: A Comparison of Carbon Offset Standards. Berlin: WWF Germany, 2008.
Williams, Jeffery, Siân Mooney, and Jeffrey M. Peterson. “What is the carbon market: Is there a final answer?” Journal of Soil and Water Conservation 64(1), 2009: 27A-35A.