Market News

 May 21, 2009
Voluntary carbon market doubles in 2008

 (Globe-Net) - The voluntary carbon market doubled in size in 2008 despite a decline in transaction activity toward year-end due to recession, the leading report on the sector has found

The State of the Voluntary Carbon Markets 2009 study, by Ecosystem Marketplace and New Carbon Finance, found 123 million tonnes (mt) of voluntary carbon emission reductions last year, up from 65 mt in 2007. By value, the trade in voluntary carbon offset credits reached $705 million, more than double the $331 million the year before.

The market’s 100-per-cent growth rate last year was down on 2007’s, however, when there was a 250 per cent surge in volumes. A factor here was the slowing in carbon credit purchases in the second half of 2008 as firms cut discretionary spending. Consumers and non-profit organisations also reduced their purchases.

The voluntary carbon market covers a wide range of transactions worldwide where companies, organizations and individuals buy carbon credits by choice, not because of any regulation that requires them to do so. It is the market outside mandatory carbon trading schemes such as the EU ETS. Motivations for voluntary carbon offset purchases are varied and include:

  • a desire to offset one’s own emissions
  • the green marketing value they offer a business
  • the expectation purchases will be recognised under a future mandatory scheme
  • for investment speculation

Surprisingly, the 2009 report found that investors buying carbon credits in the hope they can be on-sold at a profit became the biggest source of buyer demand last year, accounting for 35 per cent of purchases. Those choosing to offset their own emissions accounted for 31 per cent of purchases, down from 55 per cent.

There are two broad segments of the voluntary market; the ’over-the-counter’ (OTC) market, where buyers and sellers transact directly between each other, and the exchange-based market, which is almost entirely accounted for the by the Chicago Climate Exchange (CCX) and its own voluntary carbon reduction and offsetting programmes.

The CCX segment saw the most growth last year as US interest in carbon markets surged during an election year. CCX tripled in size to 69 million tonnes, overtaking the OTC market, which grew by a quarter to 54 million tonnes, the report found. It became clear early on that the leading candidates for President all supported capping carbon emissions and implementing a mandatory carbon trading scheme. This saw an increase in purchases of CCX credits for green marketing/PR purposes, for investment, and, in a few cases, for so-called "pre-compliance" reasons, or hoped-for early action credit in cutting emissions.

The value of the OTC market remained higher than the CCX exchange market, however, because of the higher prices paid for credits in that segment. The average price of OTC credits, called Verified Emission Reductions (VERs), was $7.34 last year while the average CCX price was just $4.43. The price difference is due to the greater integrity attached to credits that are verified to independent third-party standards, offering greater project transparency and proof that claimed emission reductions are real, permanent and accurately measured.

The CCX runs its own offsets programme which does not generally offer the same degree of validation and verification, especially in land-use projects, and has come under some criticism for a lack of environmental integrity. The report confirms this feeling in the marketplace and says it accounts for the 66 per cent price premium attached to OTC credits over CCX.

In the OTC market, by contrast, 2008 was the year that third-party verification standards really took hold, in response to those integrity concerns. The report finds that more than 96 per cent of voluntary offset credits were verified to a third-party standard last year. The top four verification standards, Voluntary Carbon Standard (VCS), Gold Standard, California Climate Action Reserve (CCAR) and the American Carbon Registry cornered 79 per cent of the non-exchange market.

State of the Voluntary Carbon Markets 2009 [PDF 1.1 MB]

For More Information: Carbon Positive