Global Climate Change Alliance:
Intra-ACP Programme
Training Module
Climate Change Finance
Module 5 – Introduction to the Voluntary
Carbon Market
Ms Isabelle Mamaty
Senior Expert
Climate Support Facility
An initiative of the ACP Group of States funded by the European Union
Module Structure
 Functioning of Voluntary carbon markets: VER
concept
 Voluntary carbon market project procedures:
standards, registries …
 Voluntary carbon market project types
 Voluntary carbon market vs. CDM project
 Voluntary carbon market opportunities in developing
countries
2
What is the Voluntary
Market ?
 Companies and individuals take responsibility for
offsetting their own emissions as well as entities that
purchase “pre-compliance” offsets.
 They co-exist with compliance markets that are driven
by regulated caps on GHG emissions
 There are two types of voluntary market: cap-andtrade and offset
3
Functioning of the Voluntary
Carbone Market
 Uses Carbon Credits
 Generated through a project based system
 Uses a Baseline – Project Emissions
 Similar to CDM procedures (many projects use
same methodologies)
 Additionality verified by independent third party
 The volume of carbon credits transacted voluntarily in 2010
represents less than a 0.3% share of the global carbon
markets
4
Voluntary Cap- and-Trade
 Cap-and-Trade (a limit on emissions of countries,
regions, sectors)
 Successful mandatory cap-and-trade examples:
SO2 (US), European Trading Scheme (EU ETS)
 There are no voluntary cap-and-trade markets
functioning at present but a number of countries
and regions of the world are considering them
• e.g. California, USA
5
What is being traded?
 Emission reductions
 Measured in tonnes of Carbon Dioxide
(tCO2)
 Also called offsets or
 Verified or Voluntary Emission
Reductions (VER)
6
VER Concept
 Voluntary Emission Reduction (VER) is a type of carbon
offset exchanged in the voluntary or 'Over-the-Counter'
(OTC) market for carbon credits
 VERs are usually created by projects which have been
verified outside of the Kyoto Protocol.
 1 VER = 1 tonne of CO2 emissions.
 VERs may be developed and calculated in compliance with
one of several VER standards. These set-out rules define
how emission reductions are measured. Standards
provider assurance for buyer of VERs. At a minimum, all
VERs should be verified by an independent third-party.
7
Voluntary Carbon
Market buyers (1)
 Who buys carbon credits?
 Companies, NGOs and individuals
 For?
 Offsetting activities and products (travel, books,
music festivals)
 Pre-compliance with mandatory schemes
 Why?
 Competitive advantage: Public relations, Branding,
Corporate Social Responsibility
 Investment/Resale
8
Voluntary Carbone
Market buyers (2)
Purely voluntary buyers:
 Organisations, companies or individuals not subject to mandatory
emission reductions
 Purchase CO2 emission credits and remove them from the market
 In order to offset their own emissions
 Motivation = ethical thinking or corporate social responsibility (CSR)
Pre-compliance buyers:
 Companies buying credits in anticipation of a mandatory market being
established in the future
 They expect that by buying now they will benefit from a lower price
than will prevail once emissions reductions are mandatory
9
Voluntary Carbone
Market Suppliers
 Project Developers: Develop GHG emissions- reduction
projects and sell the VERs
 Wholesalers: Only sell offsets in bulk and often have
ownership of a portfolio of credits
 Retailers: Sell small amounts of credits to individuals or
organizations, usually online, and might have ownership of
a portfolio of credits
 Brokers: Do not own credits, but facilitate transactions
between sellers and buyers.
10
Emission reduction
principle
Baseline
Emissions
GHG
Emissions
Project
Emissions
Time
Projects that reduce or avoid carbon emissions are the
source of credits in the voluntary carbon markets
11
Additionality
 Similar to CDM projects: Additionality is a
principal condition for the eligibility of any
project in the voluntary carbon market.
 Additionality is the requirement that the
greenhouse gas emissions after
implementation of a project activity are
lower than those that would have occurred
in the most plausible alternative scenario to
the implementation of this project activity
12
Existing Standards and
Methodologies
 There are various standards, certification
processes, and emissions registry services, but
no standard is universally accepted.
 However some standards are now widely
recognized and accepted as a proof of credibility
such as : the Voluntary Gold Standard; the GHG
Protocol for Project Accounting; and the Climate,
Community and Biodiversity Project Design
Standards …
13
Existing Standards and
Methodologies




Full-fledged Standards include accounting, monitoring and registration
o Gold Standard
o Voluntary Carbon Standard 2007 (VCS 2007)
o VER+
o Chicago Climate Exchange (CCX)
Offset Standard Screens accept project under other standards
o Voluntary offset Standard (VOS)
Bio-Sequestration Standards are sector specific standard (ex; forestry)
o VCS AFOLU standard
o Climate, Community &Biodiversity Standards (CDBS): CDM methodologies
o Plan Vivo System
Offset Accounting Protocols provide definitions and procedures to
account for GHG reductions from offset projects
o GHG Protocol
o ISO14064
14
Forest-based Standards




Plan Vivo: project specific methodologies
CarbonFix
BMV Standard
Forest Carbon Standard International
 Forest-specific standards made up one third
of all active standards in 2010
15
Registries
 Verified carbon reduction are converted to a
saleable asset
 Credits have unique ID
 Transferred from seller to buyer’s account
 Examples: Gold Standard Registry, VCS Registry,
Markit Registry, ACR, J-VER and others
 Many standards have their own registries
16
How to Develop a project
You have an idea for a project which reduces or avoids
carbon emissions
1. The project requires some extra financing or needs some
assistance to secure finance
2. It should contribute to the sustainable development of the
local community
3. Get your partners together
4. Write a Project Idea Note (PIN)
5. Decide on a Standard to use
6. Present project to credit buyers
7. Get funding for your Project Design Document (PDD)
17
Different steps of Project
Development Process
1. PROJECT IDEA AND PRELIMINARY
ASSESSMENT
2. PROJECT DESIGN AND PLANNING
3. DEVELOPING A PROJECT DESIGN
DOCUMENT
This process
takes
between 1
and 3 years
or more…
4. REVIEW PROJECT ACTIVITIES AND DEVELOP
PROJECT IMPLEMNTATION STRATEGY
5. FINALISING FINANCING AND INVESTMENT
ARRANGEMENTS
6. APPROVALS, VALIDATION AND REGISTRATION
7. IMPLEMENTATION AND MONITORING
8. VERIFICATION AND ISSUANCE
Projects can
generate
income for
10 years or
more
Voluntary Carbon Market:
Project types
The top Three Voluntary Market Projects in 2010:
 REDD / Avoided Conversion: 29%
 Landfill methane: 16%
 Wind: 11%
19
Other Voluntary market
project types






Run-of-river hydro
Agricultural soil
Improved Forest management
Livestock methane
Energy efficiency
Biomass
20
Price related to Project
characteristics (1)
 Project type is one of the most significant factors
influencing price
 Examples in 2010:
o Two of the highest average prices: Solar ($16/tCO2e) and
biomass projects
o Medium: (4-8/tCO2e) forestry, run-of- river hydro and landfill
o Lowest: large hydro ($1.7/tCO2e) and agricultural soil credits
($1.2/tCO2e)
21
Price related to Project
characteristics (2)
 Project location can also influence the price
 Project environmental impacts
 Contribution to local community – social impacts
 Project size
 Which Standard used e.g. Gold Standard or VCS for
renewables, Plan Vivo for Forestry, SOCIALCARBON
for projects with social benefits
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Issues/ constraints for the
Voluntary carbon market






Generally lower price than CDM (but not always)
Quality assurance
Transparency
Many different buyers – market is changing
Many standards and registries: can be confusing
Market is still small – just 0.3% of the global
carbon market
23
Voluntary vs. Compliance (1)
Voluntary
Compliance
Commodity
VER
CER
Price
Variable accordingly with
standard and project (typically
around USD2-6)
Higher (around USD 11)
Coverage
Voluntary/worldwide
Annex 1 countries
Market size
Smaller
Larger
Volume
2009: 98 MtCO2
2010: 131 MtCO2
2009: 7,437 MtCO2
2010: 6,692 MtCO2
Regulation
No Formal regulation
UNFCC Executive Board (EB)
Methodologies
CDM, Verified Carbon
Standard (VSC), Gold Standard
and Others
Approved by EB
Independent Third Party
CDM DOEs and Others
DOEs and EB
Voluntary vs. CDM (2)
 Less bureaucratic / reduced transactions cost
 Cheaper to generate credits
 Flexibility and Innovation - niche/new sectors not
covered by CDM
 Can contribute more to sustainable development
 Value for co-benefits: environmental & social
contributions
 Easier to register forestry projects
25
Turning words into action
26
Discussion
 Questions and answers
 Discussion and sharing of experiences
concerning the development of the voluntary
carbon market projects
Have you ever developed a voluntary
carbon market project in your sector or
at your level ? what are the institutional
and capacity needs in your organisation
to do so?
27
Where to get the
information?
Site markit:
 http://www.markit.com/en/
Carbon Finance website of the World Bank:
 http://carbonfinance.org
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Case studies
 Presentation of case studies of projects relevant to the
country needs.
29
• Thank you
• Contact: Dr. Pendo MARO, ACP Secretariat
pendomaro@acp.int or +32 495 281 494
www.gcca.eu/intra-acp