Voluntary carbon markets are emerging as a powerful yet complex tool in the global effort to combat climate change. During the latest episode of Fastmarkets’ Fast Forward podcast, hosted by Andrea Hotter, experts Enric Arderiu from Mercuria and Stuart Evans from Fastmarkets provided a deep, engaging look into how these markets work, their challenges and their potential to shape corporate climate action.
From the innovative projects driving carbon credits to the critical questions of trust and regulation, the discussion highlighted both the promise and complexity of voluntary carbon markets. Here are the key takeaways so you feel armed with a better understanding of carbon credits.
What are voluntary carbon markets?
At its core, voluntary carbon markets enable business and individuals to offset emissions by purchasing carbon credits. Unlike compliance markets dictated by government regulations, voluntary markets operate on a discretionary basis. This is often aligned with corporate sustainability goals.
“Voluntary markets allow companies to bridge the gap between operational decarbonization and net-zero commitments,” said Evans. These credits often fund projects aimed at reducing, avoiding or removing carbon from the atmosphere.
Examples of these initiatives include:
- Nature-based solutions like reforestation and avoided deforestation
- Tech-based projects such as carbon capture and storage (CCS)
- Renewable energy investments in underdeveloped regions
Challenges facing voluntary carbon markets
While voluntary carbon markets hold immense potential, they face several hurdles including:
Additionality
Additionality ensures that a carbon reduction would not have occurred without the creation of the project. Evans emphasized its importance, saying “it’s fundamental to the credibility of voluntary carbon markets.” For instance, renewable energy projects in regions where they’ve become cost-competitive may not longer meet additionality criteria.
Permanence
Projects like tree planting come with risks to permanence, as trees may die or be destroyed. This would release carbon back into the atmosphere. Arderiu said that new mechanisms like insurance and buffer pools are being developed to address these concerns.
Greenwashing
The risk of greenwashing, where companies overstate their climate action, remains high. “Transparency is key,” said Evans, urging companies to disclose their selection process for credits and prioritize quality over cost.
The future of voluntary carbon credits
Despite the current challenges, voluntary carbon markets are expected to play a crucial role in global decarbonization. Experts agree that scaling these markets will help businesses and governments meet ambitious climate targets.
Arderiu highlighted the significance of technology in enhancing trust and lowering costs, from blockchain ensuring transparency to remote sensing validating project activity on the ground.
When asked if voluntary markets are merely a stepping stone to a decarbonized future, Evans said, “there’s no world where companies meet their climate commitments that carbon markets don’t play a vital role.”
Building trust through better pricing and regulation
Fastmarkets recently launch price assessments designed to bring transparency and standardization to voluntary carbon markets. By providing data on different project types, locations and qualities, benchmarks can improve market confidence and credibility.
Regulation also looms as a double-edged sword. While businesses often resist oversight, clear standards could bolster trust and ensure uniformity.
Arderui said, “Governments like the EU and UN are helping guide the market in the right direction.”
Why carbon credits matter
Voluntary carbon markets are not a standalone solution but rather a complementary tool alongside strict emissions reduction strategies. They provide a financial incentive for companies to act now, even as regulations evolve.
The episode concluded with a call to action for businesses to engage responsibly, prioritize quality and contribute to growing this essential, albeit complex, market. Whether through innovative nature-based projects, ground-breaking tech or regulatory guidance, voluntary carbon credits are poised to become a significant force in the global decarbonization effort.
Interested in better understanding carbon credits? Listen to this dynamic discussion on the Fast Forward podcast, available wherever you get your podcasts.
