How do regulated and voluntary carbon-offset schemes compare?

Abstract

The Kyoto Protocol's Clean Development Mechanism (CDM) has become a key instrument for climate change mitigation. Parties with emission targets are using it to buy greenhouse gas (GHG) emission reductions for compliance against the Protocol's emission reduction targets. In parallel, the purchase of emission reductions through a voluntary carbon market has become a mainstream practice across business and individuals who, although not having any regulatory mandate, aim to offset their emissions. This voluntary market relies on mitigation projects which may or may not follow the standards of the CDM. This review compares these two instruments and traces similarities and differences in terms of project types, offset quality and contribution to sustainable development. It is shown that both mechanisms support a wide range of mitigation options and technologies, and differ considerably in the contribution of forestry and industrial gas offsets to their markets. There is not enough empirical data to assess the actual additionality and quality of produced offsets and their contribution to national and local sustainable development also requires further empirical assessment. Large scale mitigation options provide a substantial percentage of GHG reductions in both markets, with methane-based mitigation and fuel switching dominating over renewable investments such as solar and tidal. Africa remains the least benefited continent in both schemes. The review supports proposals towards reforming the CDM so that the least developed countries can also participate in a transition towards a decarbonised global society. Voluntary markets, in turn, are likely to remain driven by investors' willingness to support projects which are in line with poor countries' demands and priorities.