Voluntary carbon market doubles in 2008

The voluntary carbon market is maturing fast and more than doubled in size last year, according to a new study from research firms Ecosystem Marketplace and New Carbon Finance.

The report assessed the so-called voluntary market for carbon credits, which operates outside formal UN and EU-backed carbon trading schemes such as the Clean Development Mechanism and Emissions Trading Scheme (ETS).

It found that the value of the market – which consists of carbon credits from offset providers and credits traded in the voluntary Chicago Climate Exchange cap-and-trade scheme – doubled last year to $705m (£449m), while the volume of traded credits also doubled to an estimated 123 million tonnes of carbon.

The 100 per cent growth rate is double that recorded by the regulated carbon markets, which tend to see carbon credits traded at significantly higher prices. For example, the report found that the average price for voluntary offset credits increased 20 per cent to $7.34 a tonne, but that is still less than half the price that EU allowances traded in the EU ETS commanded for much of last year.

The report also found that the voluntary market – which has been criticised in the past for failing to adequately ensure that carbon credits equate to verifiable emission reductions – is showing increasing signs of maturity, with 96 per cent of credits having been verified against a third-party standard.

Moreover, the top four verification standards, Voluntary Carbon Standard, Gold Standard, Climate Action Reserve, and the American Carbon Registry, were responsible for 79 per cent of credits sold by offset providers.

"The 2008 markets saw further establishment of offset standards and the initial integration of registries, while continuing to serve as an incubation space for project types not currently accepted in the Kyoto markets,” observed Katherine Hamilton, managing director of Ecosystem Marketplace and one of the report's authors.

Milo Sjardin, head of North America at New Carbon Finance and co-author of the report, said despite the expansion of formal cap-and-trade schemes such as that proposed in the US, there was evidence that the voluntary market can continue to expand alongside compliance markets.

He argued that voluntary projects were likely to be used to pioneer new emission reduction types alongside the formal UN-backed projects, while credits are also likely to continue to be traded by firms outside of legally binding cap-and-trade schemes.