The market for voluntary carbon emissions offsetting (VCM) is an unregulated, open market system that offers carbon credits to investors from the private sector to compensate for their emissions and enable to promote “climate-neutrality”. Carbon credits are generated from either emission avoidance or removal project activities. The VCM faces structural shortcomings in all three dimensions of the market: the systemic (market), the supply and the demand side. Multiple conflicts of interest enable systemic over-crediting accompanied with questionable narratives regarding credit quality criteria (e.g. additionality, permanence, leakage) leading to an oversupply of low-quality credits in the market. Project specific and information regarding pricing and transactions is not transparent leading to information asymmetries, disturbed trust of investors and low public acceptance. Due to these shortcomings, the current potential of the VCM to considerably contribute to global decarbonization and sustainable development is low. Certain measures, however, can help to increase the market’s potential.
Table of Contents
- 1 INTRODUCTION
- 1.1 BACKGROUND
- 1.2 MOTIVATION
- 1.3 STRUCTURE OF THE PAPER
- 2 THEORETICAL FRAMEWORK
- 2.1 SCIENTIFIC FUNDAMENTALS
- 2.2 ECONOMIC FUNDAMENTALS
- 2.2.1 Essentials for Market Analysis
- 2.2.2 The Voluntary Carbon Market (VCM)
- 2.2.3 Measuring "Sustainable Transition"
- 2.3 MARKET DEVELOPMENT
- 2.3.1 Historic Development
- 2.3.2 Numeric Market Development & Status Quo
- 2.4 LEGAL FRAMEWORK
- 2.5 MARKET FUNCTIONING
- 2.5.1 Basic Market Structure
- 2.5.2 Monetary Flows
- 2.6 SELECTION OF IMPORTANT MARKET PLAYERS
- 2.7 CURRENT PROJECT TYPES FOR EMISSION "OFFSETTING"
- 2.8 FURTHER PROMISING PROJECT TYPES
- 2.8.1 Nature-based Solutions
- 2.8.2 Technical Solutions
- 2.9 INTERIM CONCLUSION
- 3 METHODOLOGY
- 3.1 AIM OF STUDY AND RESEARCH QUESTIONS
- 3.2 GENERAL APPROACH
- 3.3 LITERATURE RESEARCH
- 3.4 QUALITATIVE DATA GENERATION
- 3.5 QUALITATIVE DATA ANALYSIS
- 3.6 LIMITATIONS AND SIMPLIFICATIONS
- 4 RESULTS FROM QUALITATIVE DATA GENERATION
- 4.1 RESULTS: PROBLEMS
- 4.2 RESULTS: SOLUTIONS
- 5 CRITICAL REVIEW
- 5.1 THE MARKET SIDE (SYSTEMIC)
- 5.2 THE SUPPLY SIDE
- 5.2.1 Nature-based Solutions
- 5.2.2 Technical Solutions
- 5.2.3 Project Types with social and environmental Co-Benefits
- 5.3 THE DEMAND SIDE
- 5.4 DISCUSSION
- 6 RESULTS
- 6.1 POTENTIAL FOR A SUSTAINABLE TRANSITION
- 6.2 RECOMMENDATIONS FOR ACTION
- 6.3 FUTURE OUTLOOK
- 7 CONCLUSION
Objective & Thematic Focus
This master's thesis fundamentally aims to assess the potential of the voluntary carbon market (VCM) for a global sustainable transition. It investigates the market's functioning, identifies key players, evaluates various offsetting measures for effectiveness and co-benefits, analyzes current market problems and their origins, and explores future scenarios and necessary measures to unlock the VCM's full potential.
- Analysis of the Voluntary Carbon Market (VCM) structure and operations.
- Evaluation of emission reduction (ER) and carbon dioxide removal (CDR) offsetting measures.
- Identification and assessment of challenges and shortcomings within the VCM.
- Examination of the role of nature-based and technical solutions in carbon offsetting.
- Exploration of legal frameworks and market development within the VCM.
- Recommendations for action to enhance the VCM's contribution to sustainable transition.
Excerpt from the Book
The Voluntary Carbon Market (VCM)
The VCM, being the superior ecosystem of voluntary emission offsetting schemes, aims to promote the decarbonization of the private sector by streamlining financial resources into activities that lower or compensate emissions and promote sustainable development. Each ton of residual emissions is offset with one carbon credit. Theoretically, this enables the use of the claim “carbon neutral” for the business or product, as, in theory, residual emissions are neutralized. In contrast to other mandatory and voluntary carbon trading schemes, the VCM is an open market environment. It is not regulated or intervened by any institutional or governmental influence, therefore no binding standards, price ceilings, or other price distortions are introduced top-down. The market is open to any new market actors, on the supply and demand side or as supportive service provider. The market’s commodity is the carbon credit.
The Carbon Credit: One carbon credit represents exactly 1 metric ton of CO2-equivalence – either being avoided to reach or removed from the atmosphere by the aid of a project. Carbon credits need to meet certain criteria to grant for integrity and efficiency: Additionality, the ER or CDR would not have happened without the existence of the project generating funds through carbon credits (Proving the Counterfactual); Permanence, time of the emissions avoided or removed. No specific timeframe is given industry-wide, mostly the benchmark for permanence is 100 years; Quantifiability, the underlying baseline and project activities can be calculated precisely to prevent over-quantification (MRV = measuring, reporting, verification); Single Counting, avoidance of counting multiple, national emission targets; Leakage, the risk that avoided/reduced emissions from the project occur elsewhere; Social/environmental co-benefit(s) offered to further project stakeholders such as local communities or biodiversity (optional).
Summary of Chapters
Chapter 1: Introduction: This chapter provides background on global warming and emissions, explains the motivation behind studying the voluntary carbon market, and outlines the structure of the thesis and its research questions.
Chapter 2: Theoretical Framework: This chapter establishes the scientific and economic fundamentals of carbon markets, details VCM development and functioning, and explores legal frameworks and current project types.
Chapter 3: Methodology: This section describes the research design, including the aim of the study, the general approach, literature research methods, qualitative data generation and analysis, and acknowledged limitations.
Chapter 4: Results from Qualitative Data Generation: This chapter presents the findings from the qualitative research, detailing both the identified problems within the VCM and the proposed solutions based on expert interviews.
Chapter 5: Critical Review: This part critically examines the systemic (market side), supply side (nature-based, technical, co-benefits), and demand side aspects of the VCM, followed by a discussion of the findings.
Chapter 6: Results: This chapter outlines the VCM's potential for sustainable transition, provides recommendations for action, and offers a future outlook for the market's development.
Chapter 7: Conclusion: This final chapter summarizes the main findings, reiterates the market's overall potential, discusses remaining shortcomings, and proposes a holistic strategy for a long-term successful system.
Keywords
Voluntary carbon market, Carbon offsetting, Emission reduction, Carbon Dioxide Removal (CDR), Decarbonization, Sustainable transition, SDGs, Climate-neutrality, Market shortcomings, Information asymmetries, Project integrity, Greenwashing, Market regulation, Co-benefits.
Frequently Asked Questions
What is the fundamental topic of this work?
This work fundamentally addresses the voluntary carbon market (VCM), exploring its structure, challenges, and potential to contribute to a global sustainable transition.
What are the central thematic areas?
The central thematic areas include the functioning and development of carbon markets, the assessment of emission offsetting methods, the identification of market shortcomings, and the evaluation of nature-based and technical solutions.
What is the primary goal or research question?
The primary goal is to assess the potential of the voluntary carbon market for a global sustainable transition, with key research questions focusing on market mechanisms, player importance, offsetting effectiveness, market problems, and future development scenarios.
Which scientific method is used?
The thesis employs a qualitative research method, involving extensive literature research, qualitative data generation through interviews with experts, and subsequent data analysis.
What is covered in the main body?
The main body delves into the theoretical framework of carbon markets, their economic fundamentals, historical development, legal aspects, market functioning, and a critical review of the systemic, supply, and demand sides of the VCM.
Which keywords characterize this work?
Key terms characterizing this work include voluntary carbon market, carbon offsetting, emission reduction, CDR, decarbonization, sustainable transition, SDGs, climate-neutrality, and market shortcomings.
What are the main structural shortcomings of the VCM identified in the study?
The study identifies structural shortcomings in the VCM across systemic, supply, and demand dimensions, including issues like systemic over-crediting, low-quality credits, lack of transparent pricing and transactions, and resulting information asymmetries and low public acceptance.
What are the key criteria for ensuring the integrity and efficiency of carbon credits?
Key criteria for carbon credit integrity and efficiency include additionality (credits would not have occurred without the project), permanence (long-term impact), quantifiability (accurate measurement), single counting (avoiding double claims), absence of leakage (emissions not shifted elsewhere), and social/environmental co-benefits.
How do nature-based solutions (NbS) and technical solutions contribute to carbon offsetting?
Nature-based solutions leverage natural processes like afforestation, reforestation, and soil carbon sequestration, while technical solutions involve engineered approaches such as carbon capture and storage (CCS) or direct air capture (DAC) to remove or reduce emissions.
What future outlook is projected for the VCM's role in sustainable transition?
The future outlook for the VCM suggests that with proper addressing of its shortcomings, particularly regarding transparency, integrity, and regulatory frameworks, it has significant potential to contribute to global decarbonization and a sustainable transition by mobilizing private sector finance.
- Citar trabajo
- Tilman Baunach (Autor), 2024, The Market for Voluntary Carbon Emission Offsetting (VCM), Múnich, GRIN Verlag, https://www.grin.com/document/1621830
