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Carbon Markets

The Voluntary Carbon Market

The main goal of the voluntary carbon market is to drive finance to climate-positive projects that reduce greenhouse gas (GHG) emissions. Carbon credits are the vehicle that connects carbon projects with consumers that purchase and retire credits to achieve their climate targets. A carbon credit represents a measurable and verifiable removal, reduction, or avoidance of GHG emissions and is denominated in tCO2e (which means "tonne of CO2 equivalent").
→ Take a deeper dive into carbon credits with these docs. → Learn about how voluntary carbon markets differ from compliance markets here.

Carbon Standards

In the voluntary carbon market, carbon standards set the rules and requirements carbon projects need to follow in order to demonstrate they meet minimum quality criteria. Verra and Gold Standard are the two major players, with smaller standards issuing less than a quarter of total voluntary market carbon credits each year.

Methodologies

The "rules" carbon projects need to follow are a combination of high-level requirements and processes set by the standard and specific accounting methodologies. A methodology dictates things like monitoring requirements and is different for each carbon credit-generating activity. A methodology for protecting forests from deforestation requires different data to be collected than a methodology for wetland restoration. Independent 3rd parties—a list of auditors authorized by each standard—will assess projects against these rules and requirements. Only after a successful verification will the project be issued carbon credits by the standard body.

Carbon Registries

Each standard maintains a centralized registry with a list of all its projects, and the issued and retired credits associated with each project.

Retiring carbon credits?

After projects have proven that they've removed or reduced GHG emissions they are issued carbon credits that are in an active state. Because projects generally don't have direct contact with companies who will buy their credits to satisfy sustainability claims, they often sell them to intermediaries—brokers, resellers, and retailers. Active carbon credits can pass from one hand to another without changing their status. But when an end-buyer wants to use the credits to compensate their GHG emissions for carbon accounting purposes, the credits need to be retired. Now the carbon credit has fulfilled its "duty" and nobody else will be able to claim the carbon removal or reduction for their books. A registry account is needed to trade carbon credits in an active state. These accounts can cost $1000 a year in the case of Gold Standard.