Voluntary Carbon Markets
Voluntary markets cover carbon-reducing projects that are being demanded voluntarily by citizens and organizations. Unlike the regulated market, the voluntary market does not presently rely on legally mandated reductions to generate demand. Until recently, transactions in the voluntary market have not been required to undergo a uniform certification or verification process nor to register offset projects with any central body. This is quickly changing: As the voluntary market grows customers, industry and industry observers are quickly moving to abide by formal standards to ensure quality.
The voluntary markets do not have the associated large transaction costs required to register projects under the Kyoto Protocol. After weighing the pros and cons, many non-profit organizations are supportive of the growing voluntary markets because they provide individuals, not just large organizations, with a way to participate in the fight against climate not offered by compliance markets.
For many businesses, the voluntary market is a risk-management tool that provides an opportunity for organizations to learn more about carbon markets in preparation for eventual participation in the regulated markets of the future. Additionally, participation is a marketing tool, helping organizations to manage their reputation and recruit, retain and reward quality employees. Many believe that mandatory and voluntary carbon markets complement each other and are even essential to on another's existence. When voluntary reductions can be used as offsets for compliance, they increase market depth and liquidity by increasing the number of suppliers who can provide supply when needed. The use of offsets in a mandatory market broadens the financial incentive for innovation to firms not covered by regulations, providing a mechanism for containing the costs associated with meeting mandatory targets.