mandatory and voluntary carbon markets

What is the difference between Voluntary Emission Rights (VER’s) and Compliance Emission Rights (CER’s)?

Compliance markets are created and regulated by mandatory international, regional, and subnational carbon reduction schemes such as the Clean Development Mechanism regulated by the Kyoto Protocol, the European Union’s Emissions Trading Scheme (EU-ETS), and the California Carbon Market.

Voluntary offset markets function outside of the compliance markets and enable companies and individuals to purchase carbon offsets on a voluntary basis. For example, individuals who seek to offset their CO₂ emissions and companies who would like to become climate neutral can buy an equivalent in terms of carbon credits to “neutralize” their carbon footprint.

FairClimateFund operates within the “carbon offsetting” market. By paying someone else to reduce GHG emissions elsewhere, the purchaser of a carbon offset compensates for (“offset”) their own emissions. Carbon offset markets exist both under “compliance” schemes and as “voluntary” programs.

Compliance markets (CER’s)

Countries that have accepted limits for greenhouse gas emissions under the UN Climate Change convention, must meet their targets primarily through national measures. However, the Kyoto Protocol offers them additional means of meeting their targets by way of various market-based mechanisms. One of these mechanisms is the Clean Development Mechanism (CDM) which enables countries to achieve their targets through emission-reduction projects in developing countries. Such projects can earn certified emission reduction (CER) credits, each equivalent to one tonne of CO₂, which can be counted towards meeting Kyoto targets. Projects seeking to offer CER’s on the market will need to get their emission reductions validated by Designated Operational Entities (third party validators and verifiers) and registered by the CDM Executive Board – a rigorous and heavy procedure aimed to ensure that real, measurable and verifiable emission reductions are realised which are additional to what would have occurred without the implementation of the climate project or the “baseline” situation.

Voluntary markets (VER’s)

The voluntary carbon markets function outside, but in parallel of, the compliance market. This market offers businesses, NGOs and individuals the possibility to offset their own emissions on a voluntary basis by purchasing carbon credits. These can be credits created either under CDM or under other standards operating in the voluntary market. This voluntary market operates not because of government obligations but as a matter of own (corporate) social responsibility (CSR) and/or as response to market pressure and public opinion.

The difference between the compliance and the voluntary markets is the fact that a voluntary carbon credit (VER) cannot be used by entities to meet their obligations under the compliance scheme of the Kyoto Protocol. However, a compliance carbon credit (i.e. certified emission reduction, CER) can be accepted by entities wanting to voluntarily compensate their emissions.

FairClimateFund focuses on voluntary markets with both CER’s and VER’s.

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