Market News

 April 02, 2009
New registry boosts voluntary offsets in the recession


The Voluntary Carbon Standard registry offers hope of transparency in the often murky world of voluntary offsetting

By Stephen Gardner and Birgit Vartdal

Project developers and brokers trading in carbon offsets have welcomed a new global registry system, launched March 17 by the Voluntary Carbon Standard Association (VCSA), saying it will enhance the credibility of the voluntary carbon credit market.

"This is a critical piece of the integrity puzzle and an important step towards more transparency in this market," says Jonathan Shopley, managing director of The Carbon Neutral Company, one of the world's leaders in the business of buying and selling carbon offsets.

Voluntary market

Voluntary offsetting is a way for companies and individuals to compensate for their greenhouse gas emissions by funding reductions or removal of carbon dioxide elsewhere.

They do this by buying credits that are variously titled Verified Emission Reductions or Voluntary Carbon Units (VCUs), each of which represents one tonne of carbon dioxide. In 2007 the voluntary market -- which is a different beast from the compliance market for offsets under the Kyoto Protocol -- was worth $330 million, according to the VCSA.

But the voluntary market has been dogged by criticism of the poor quality of carbon credits, with questions raised over double-counting and the verifiability of carbon reductions. A 2007 investigation by The Guardian newspaper found that many of the schemes on offer were untrustworthy, with lack of regulation and reliable standards a major problem.

Seeking clarity

The VCSA set out to counter this when it established in 2007 the Voluntary Carbon Standard, a way of measuring the quality of carbon offsets. According to the VCSA, the standard is "as robust as those of the Kyoto Protocol's Clean Development Mechanism," under which developed nations can earn credits for emission reduction projects in developing countries.

The registry is the next logical step -- a reliable trading platform for reliable offsets that meet the VCSA's criteria.

David Antonioli, chief executive of the VCSA, says that quality checks on projects will be central to the registry system. "The registry will also check that no other provider has issued credits from the same project, and if not the credits will be given unique serial numbers," Antonioli adds.

Three-part registry

The system is in fact an umbrella for three platforms, operated respectively by California-based APX Inc, France's Caisse de Dépôts, and financial market infrastructure provider TZ1. These companies provide a service covering the issuance, transferring, tracking, and retiring of VCUs.

The three registries are connected to the public VCS Project Database, from which information about carbon reduction or removal projects, and the credits they generate, can be obtained. This, the VCSA says, means buyers can see in detail what they are buying.

Antonioli thinks that the system offers not only transparency, but also a legal underpinning to the market, and this should build confidence in voluntary offsets. This is reinforced by the way the registry is structured. "The reason we chose three different registry providers was to make sure that customers had some choice and that there was competition," Antonioli says.

The Carbon Neutral Company's Shopley says the VCSA registry system will need to be tested over time, but his firm has already started to use it. Their first purchase of VCUs via the registry was of credits produced by a wind-power project in India, brokered by carbon credit developer Ecosecurities.

Lisa Ashford of Ecosecurities is also enthusiastic. "The registry system ensures that credits are not double-sold and that is a big step forward, yet it remains to be seen whether this will become a unifying global voluntary carbon standard," she says.

Voluntary market slump

The opening of the registry has come at a time when the voluntary market is suffering in the financial and economic crisis. Figures from analysts New Carbon Finance show that the volume of credits transacted plummeted by 70 percent between November 2008 and the end of February 2009. Prices have also fallen, by around 40 percent since summer 2008.

The drop-off is unsurprising considering that "corporate discretionary spending [is] the backbone of demand" in the voluntary market, New Carbon Finance notes in its March research report.

But the analysts add that "standards are by far the largest price driver for voluntary credit prices," and prices for more rigorously checked offsets have held up best -- meaning the VCSA's global registry system should be well-placed to take advantage of any upturn in demand.

According to Jonathan Shopley, "trade in voluntary carbon offsets will scale up as a consequence [of the registry], even though climate change in a recession period will not be at the top of the agenda for many companies."


Not everyone is positive about the voluntary market's long-term prospects however. Kevin Smith of Carbon Trade Watch, a pressure group, calls registries of any kind for voluntary offsets "a distraction" in the fight against global heating. Offset markets are "justifying fossil fuel emissions," Smith says.

The Voluntary Carbon Standard, which is backed by, among others, the International Emissions Trading Association and the World Business Council for Sustainable Development, is one of a number standards for voluntary offsets. Others include the Voluntary Gold Standard, promoted by WWF, and the Green-e, a US label for renewable energy projects.

See: http://vcsprojectdatabase.com