Voluntary carbon market

Information on voluntary carbon markets and the participation of the Russian Federation in them is also available in the category:

Voluntary Carbon Markets.

Table of Contents

International Voluntary Carbon Market

Voluntary carbon standards are initiatives that aim to reduce or prevent greenhouse gas emissions or remove them.

Emissions prevention involves taking measures to prevent the release of greenhouse gases. For example, using renewable energy sources in production processes or projects aimed at preserving forests and reducing greenhouse gas emissions associated with their destruction.

Emissions reduction means reducing existing greenhouse gas emissions. For example, applying energy efficiency measures in production or sustainable agriculture.

Emissions removal refers to the process by which carbon dioxide is removed from the atmosphere and accumulated in natural or artificial reservoirs. Examples include forest restoration or direct air capture (DAC).

Voluntary carbon markets became widespread during the Kyoto Protocol. The main advantage was their development by voluntary carbon standards and absence of legislative regulation, as a result of which:

Freedom of choice of the location of implementation of climate projects and their types
Freedom of circulation and use of issued carbon credits

Over time, a number of popular initiatives have emerged that set requirements for companies to set goals for achieving carbon neutrality (SBTi), their investment in climate projects and carbon credits (BVCM), as well as the order and quality of used carbon credits (Core Carbon Principles) and statements in this regard (Claims Code of Practice). Special attention should be paid to initiatives to issue carbon tokens designed to increase the liquidity of carbon units.

Also, as the provisions of the Paris Agreement are being implemented, countries are seeking to regulate the implementation of climate projects for voluntary carbon markets on their territory, legally enshrine the obligation to register them in national registers, including with the payment of a share of the profit obtained from their implementation.

In turn, voluntary carbon standards:

Adapt their rules to these initiatives for the use of carbon credits, as a result of which they receive guaranteed demand;
Reach agreements in specific jurisdictions on the possibility of corresponding adjustment of issued carbon credits, as a result of which they receive the potential opportunity to use their rules and methodologies in the implementation of climate projects according to the Article 6.2 mechanism of the Paris Agreement;
Reach agreements on the use of issued carbon credits in regulated industry (Carbon Offsetting and Reduction Scheme for International Aviation – CORSIA) and national systems (offsetting the carbon tax in South Africa and Singapore).

The implementation of climate projects for voluntary carbon markets is based on principles that ensure their effectiveness and sustainability. The principles vary depending on the standard, while the fundamental ones include:

The principle of permanence: A climate project should prevent the subsequent return of carbon to the atmosphere. For example, through the prevention of forest fires in afforestation projects.
The principle of additionality: A climate project should lead to a reduction or absorption of more emissions over a certain period of time than in the absence of the project. It must also be proven that the project would not have been implemented without additional financial resources attracted on the carbon market.
The principle of avoiding double counting: It is not allowed to account for carbon credits simultaneously in several registers or to sell them to several buyers.
The principle of preventing leakage: The implementation of the project should not lead to the fact that the source of greenhouse gas emissions is transferred to another region.

The implementation of a climate project usually includes several stages that may vary depending on the type of project and the methodology used. In general, the process of implementing a climate project can be described as follows:

Project design: At this stage, the initial conditions and monitoring methodology are defined, the estimated reduction of greenhouse gas emissions and the accompanying environmental and social benefits from the implementation of the project are assessed.
Validation: The design of the project is validated and approved by independent parties to ensure compliance with the requirements of the standard and the methodology used.
Implementation: The actual implementation of the project takes place, monitoring of its results and preparation of reports.
Verification: Third-party verification of project results reports.
Registration and sale of carbon units: After successful verification of the project, carbon credits can be registered and sold on the carbon market.

It should be noted that currently the legislation of the Russian Federation does not impose requirements on climate projects for voluntary carbon market implemented on the territory of the country. This has both advantages (no need to coordinate such projects) and risks (unplanned consequences when introducing appropriate regulation).

Russian Voluntary Carbon Market

The implementation of climate projects under the Federal Law “On Limiting Greenhouse Gas Emissions” can be classified as part of both the voluntary carbon market and the regulated market. In both cases, the outcome is the same — the absorption or prevention of greenhouse gas emissions. However, the key difference lies in how the resulting carbon reduction units are used.

In the voluntary market, carbon reduction units can be purchased to reduce the carbon footprint. These units can be owned by any entity, including foreign legal entities and individuals. The voluntary market is characterized by the absence of state-imposed obligations and the free choice of participants.

In the case of the regulated market, exemplified by the Sakhalin experiment, carbon units are purchased to meet obligations set by government authorities. In this case, there is a specially designated entity, such as a regional regulatory organization. This market is not voluntary because fulfilling the obligations is a requirement, not a choice.

Thus, the difference between the voluntary and regulated markets lies in the purpose of using carbon units and the obligation to acquire them.

There is an opinion that if a market is regulated by the state, it automatically ceases to be voluntary. This was true in the past. However, many countries now regulate the implementation of climate projects in their territories according to voluntary standards, both at the national and international levels.

Additionally, international practice shows that voluntary carbon initiatives can be created privately, outside the framework of the Federal Law “On Limiting Greenhouse Gas Emissions.” So far, there are no such initiatives in Russia, but this direction has potential for development.