Carbon markets

The Voluntary Carbon Market: a quick overview

The voluntary carbon market (often shortened to VCM) is an important mechanism for driving money to projects creating a climate-positive impact by reducing or avoiding greenhouse gas (GHG) emissions. Carbon credits are issued by standards bodies, who certify that climate impact has taken place. People and organizations can then buy the credits and retire them to claim positive environmental impact. Each carbon credit represents a measurable and verifiable removal, reduction, or avoidance of GHG emissions. These credits are denominated in tCO2e, which means tonne of CO2 equivalent.

Learn more about carbon credits ->

Read about how voluntary carbon markets differ from compliance markets ->

Carbon Standards

Carbon standards govern the methodologies which define how climate impact is created and verified. Every carbon project needs to follow these methodologies to show it meets minimum quality criteria. Once a project’s impact has been verified, standards bodies issue carbon credits to the project. Carbon standards play a key role in ensuring carbon credit quality, and buyers and offsetters value the stamp of approval that standards bodies give to carbon credits.

Currently, Verra and Gold Standard are the two most established entities setting carbon standards. Smaller standards bodies issue less than a quarter of the voluntary market carbon credits each year. Some standards bodies specialize in different decarbonization pathways — for example, Puro.earth focuses on engineered carbon removal methodologies.

Methodologies

To get carbon credits issued, each project needs to follow high-level requirements and processes, and use certain accounting methodologies that describe which data should be monitored. These methodologies vary depending on the carbon credit-generating activity. A project that is protecting forests from deforestation, for example, needs to collect different data than a wetland restoration project. The same applies to technology-based methodologies: projects that focus on capturing methane emitted from coal beds have different data requirements than ones that provide charging infrastructure for electric vehicles. Independent third parties — a list of validation/verification bodies authorized by each standard — assess projects according to set rules and requirements.

Once it’s been verified, a project can be issued carbon credits by the standards body.

Carbon Registries

Standard bodies maintain their own carbon registries. These hold a list of all the projects that have been issued carbon credits, and some records of the credits themselves. When a carbon credit is retired, this is shown in the registry.

What are carbon credit retirements?

After a project has proven that it removed or reduced GHG emissions, it receives carbon credits. These credits are issued in an active state because they represent an environmental impact claim.

Often, projects don't have connections to companies that want to buy carbon credits to compensate for their emissions. So they often sell their active credits via intermediaries — brokers, resellers, and retailers. Active carbon credits can pass from one hand to another without losing their active status. But when a buyer wants to use a credit to compensate (or offset) carbon emissions for carbon accounting purposes, their credits need to be retired. After being retired, the carbon credit has fulfilled its duty, and its environmental impact claim is consumed — no one else will be able to claim a carbon removal or reduction with that specific credit.

Important to know: you need to have a registry account to trade active carbon credits in legacy registries. These accounts can cost ~ $1000 a year.

The registries that standards bodies maintain typically run on centralized databases. These systems track carbon credit ownership and record which credits have been retired. Different registries have different functionalities available to users and project developers.

Even more potential for carbon credits

Toucan's infrastructure isn’t just improving carbon registries — it’s creating a brand-new use case for carbon credits. On open blockchains, they can plug into the world of decentralized finance. We’re working with the best DeFi projects, like Uniswap and Sushiswap, to make sure carbon credits on Toucan can safely benefit from these new financial technologies. You can now buy carbon pool tokens 24/7 anywhere in the world, then redeem and retire them.