A new standard for verifying carbon credits issued outside the Kyoto Protocol's Clean Development Mechanism and Joint Implementation and other government-based cap-and-trade systems has been established at the London Stock Exchange. The issue of creditability of voluntary carbon credits has been rising over the last couple of years as parties engaged in purchasing voluntary credits have found in some cases that credits had questionable veracity or sources. The new standard simply called the Voluntary Carbon Standard (VCS) is another attempt to establish a rigorous vetting process to ensure the reliability of voluntary credits sometimes referred to as Voluntary Emission Reductions (VERs).
The new VCS marks the end of a two-year consultation with industry, Non-Governmental Organizations (NGOs) and market specialists, led by The Climate Group, the International Emissions Trading Association (IETA) and the World Business Council for Sustainable Development (WBCSD). The establishment at the London Stock Exchange demonstrates the growing importantance the financial markets place on investment in carbon credits. Carbon credits are seen as a type of "non correlated" investment--investments that are not influenced by certain other market factors such as stock markets, inflation, and interests rates. Carbon credit prices are affected by the cost of coal and natural gas.
Some market analysts estimate that annual transactions in the voluntary carbon market could reach four billion dollars in the next five years. The VCS may be instrumental in this future growth if it provides the reliability to ensure reliable VERs.
Although direct cuts in emissions are the first step for any individual or business looking at minimizing contribution to climate change, the voluntary carbon market has an important role to play. Government regulation and appeals for people to change their behavior will not be sufficient alone to achieve the carbon reductions needed at the rate necessary to reduce climate change.
Carbon offsetting or emissions markets are a critical part of merging ecology and climate with economic systems. In essence, embedding in our economic system processes and programs that lead to the emergence of a market and investment in projects that reduce pollution and protect the environment. In the case of climate change, it puts humanity in a more positive role in the Earth's climate—forging a New Carbon Cycle, in which human economic activity is in part playing a role to maintain the natural carbon cycle.
The cap-and-trade concept permits individual agents or firms to develop strategies and investments to profit by developing projects that reduce emissions and then selling the offsets or carbon credits on the open market. The mandatory program for compliance functions like the sulfur dioxide system in the US, where emissions trading was invented. The SO2 program has been extremely successful and decreasing the costs for reducing emissions beyond what industry and even the US Environmental Protection Agency anticipated.
Beyond these "mandatory" or "compliance" programs for reducing emissions, in the greenhouse gas reduction arena, the voluntary standard demonstrates that even outside or without a governmental mandate, as generally does not exist yet in the United States, but is arising now through US states passing legislation to create cap-and-trade systems, a market for emissions offsets can arise and prosper, leading to emission reductions beyond what any government is requiring.
The veracity of these voluntary credits becomes critical, like any other economic product. Somewhat like a stock, security, or currency, the seller needs to be sure that the generation of the credit can be sold and the buyer that the credit has real value and is not a worthless piece of paper or electronic trade. Rules for certification under the VCS are said to be as robust as those of the Kyoto Protocol’s Clean Development Mechanism (CDM), but is designed to be more efficient to attempt to reduce the costs for participants and time delays sometimes incurred with the UN Executive Board that manages the CDM process.
Andrei Marcu, President of The International Emissions Trading Association (IETA) and co-chair of the VCS Steering Committee, says: “While the main action must be in regulatory approaches, voluntary actions and offsets have an important role to play, and the VCS will provide them with necessary credibility.”
Adam Kirkman, Program Manager, World Business Council for Sustainable Development, said, “Many WBCSD member companies already participate in emerging carbon markets or implement emission reduction projects on a voluntary basis. The Voluntary Carbon Standard provides additional incentive to business to invest internationally in low carbon technologies, allowing companies to monetize the gains from their early voluntary actions via a robust standard supported by third-party verification that delivers environmental integrity, consumer confidence, and market credibility.”
The ongoing development through private parties of voluntary carbon credit standards and markets demonstrates the power of using markets and economic systems to set the stage for the emergence of a bridge between human systems and natural systems. The emergence of this New Carbon Cycle demonstrates that human beings are still evolving in the face of significant threats to their lives and livelihoods. The evolution is intellectual, rather than physical. Emissions markets provide a critical part of addressing climate change, despite criticism from ideological representatives from both the right and the left, this process had been established, and it appears unlikely that carbon credit trading will cease to be a part of provincial, national, and international legal and economic systems. All signs are that emissions markets will play a critical role in any greenhouse gas or climate change legislation and treaties, and even without such regulation, voluntary markets will play an imporant role in protecting our environment.