What is the voluntary carbon market (VCM), and how does it finance climate solutions?
The voluntary carbon market (often shortened to VCM) is an important mechanism for driving money to projects generating a climate-positive impact by reducing or avoiding greenhouse gas (GHG) emissions. Carbon credits are issued by those who verify that climate impact has taken place. People and organizations can then buy them for planet-positive 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.
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.
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 auditors 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.
After a project has proven that it removed or reduced GHG emissions, it receives carbon credits. These credits are issued in an active state.
Most projects don't have connections to companies that want to buy carbon credits to be more sustainable. So they often sell their active credits to intermediaries — brokers, resellers, and retailers. Active carbon credits can pass from one hand to another without changing their status. But when a buyer wants to use a credit to compensate (or offset) GHG emissions for carbon accounting purposes, their credits need to be retired. After being retired, the carbon credit has fulfilled its duty - no one else will be able to claim a carbon removal or reduction for this credit.
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.
This is where the Toucan Meta-Registry comes in! We’ve designed our carbon registry infrastructure to support carbon credits from a broad range of standards bodies. It serves the public as well as developers. Anyone can check the status of a specific carbon credit, regardless of which registry issued it. And our system offers strong tools for builders and developers, like APIs to both read data and update records (i.e. transfer and retire tokens). We’re actively working on building more developer tools.
Our infrastructure isn’t just about improving carbon registries. It also creates a brand-new use case for carbon credits! On open blockchains, they can plug into the world of decentralized finance, or DeFi, as well as into gaming experience, and the metaverse.
You could deposit carbon credits to earn interest, use them as green gaming assets, or to power virtual experiences.