Exploring the market for voluntary carbon offsets Nadaa Taiyab 2006 International Institute for Environment and Development (IIED) IIED is an independent, non-profit research institute working in the field of sustainable development. IIED aims to provide expertise and leadership in researching and achieving sustainable development at local, national, regional, and global levels. In alliance with others we seek to help shape a future that ends global poverty and delivers and sustains efficient and equitable management of the world’s natural resources. Environmental Economics Programme The Environmental Economics Programme (EEP), which forms part of IIED’s Sustainable Markets Group, seeks to develop and promote the application of economics to environmental issues in developing countries. This is achieved through research and policy analysis on the role of the environment and natural resources in economic development and poverty alleviation. Forestry and Land Use Programme The Forestry and Land Use (FLU) Programme, which forms part of IIED’s Natural Resources Group, has the goal of improving people’s livelihoods from forest and land use on the basis of equity, efficiency and sustainability, focusing on key arenas where the decision- making that matters for better forestry and land use actually takes place. Climate Change Group The Climate Change Group works to enhance the capacity of developing countries to adapt to climate change impacts, particularly by improving sustainable livelihoods for poor communities, and to participate fully in international negotiations on climate change. The work aims to improve the understanding of climate change impacts for poor developing countries among people at all levels and to mainstream climate change concerns into national strategies and policies in relevant sectors. The author Nadaa Taiyab is a masters student at the Fletcher School of Law and Diplomacy at Tufts University (Boston). She is studying International Business and International Environmental Policy. She can be reached at [email protected] Acknowledgements This study was prepared by the author during an internship with IIED’s Climate Change Group and Environmental Economics Programme. Financial support for this internship was provided by the Henry Luce Foundation. Funding for the publication of this report was provided by the Royal Danish Ministry of Foreign Affairs, the Swiss Agency for Development and Cooperation (SDC), and the UK Department for International Development (DFID). The author wishes to thank Saleemul Huq, Maryanne Grieg-Gran, and Hannah Reid at the IIED for their guidance and support in this project. The opinions expressed in this report are the opinions of the authors and not necessarily those of IIED. Cover photo: This photo was provided by the Edinburgh Centre for Carbon Management and comes from the Nhambita Community Carbon Project in Mozambique (IIED has purchased carbon credits from this project to offset its carbon emissions). Citation: Nadaa Taiyab. 2006. Exploring the market for voluntary carbon offsets. International Institute for Environment and Development, London. Permissions: The material in this paper may be reproduced for non-commercial purposes provided full credit is given to the author and to IIED. Copies of this report are available from: Earthprint Limited, Orders Department, P.O. Box 119, Stevenage, Hertfordshire SG1 4TP, UK; Email: [email protected]. Enquiries: tel +44 (0)1438 748111; fax +44 (0)1438 748844; Email [email protected] or from www.earthprint.com. The report is also available as a pdf document at www.iied.org or from [email protected]. Contents Acronyms and abbreviations 1. Introduction......................................................................................................................1 2. Overview of the carbon market......................................................................................3 2.1 What are carbon offsets?............................................................................................3 2.2 How do you trade carbon? .........................................................................................4 2.3 Why trade carbon? .....................................................................................................5 2.4 The interaction between project based transactions and allowance based transactions ............................................................................................................................5 2.5 Existing carbon markets.............................................................................................5 2.6 The Clean Development Mechanism.........................................................................6 3. The voluntary and retail markets...................................................................................8 3.1 Description.................................................................................................................8 3.2 Market size.................................................................................................................8 3.3 Sustainable development ...........................................................................................9 3.4 Project standards and verification..............................................................................9 3.4.1 CDM / JI Standards..........................................................................................10 3.4.2 Gold Standard ..................................................................................................10 3.4.3 Climate, Community, and Biodiversity Standards (CCBS).............................11 3.4.4 Self developed standards..................................................................................11 3.4.5 Labelling schemes............................................................................................12 3.5 Some pros and cons of land-based sinks..................................................................12 4. Buyers and sellers in the retail market ........................................................................14 4.1 Retailers ...................................................................................................................14 4.2 Brokers.....................................................................................................................15 4.3 Buyers ......................................................................................................................15 4.3.1 Business ...........................................................................................................15 4.3.2 Non-profit organisations ..................................................................................17 4.3.3 Government......................................................................................................18 4.3.4 International conferences and events...............................................................19 4.3.5 Individuals and celebrities ...............................................................................19 4.4 Buyer concerns and considerations..........................................................................20 4.5 What is driving the market?.....................................................................................20 5. Looking ahead ................................................................................................................22 ANNEX A: ORGANISATIONS INTERIVIEWED ...........................................................23 ANNEX B: KYOTO MECHANISMS ................................................................................24 ANNEX C: EU EMISSIONS TRADING SCHEME ..........................................................26 ANNEX D: NSW EMISSIONS TRADING SCHEME ......................................................27 ANNEX E: CHICAGO CLIMATE EXCHANGE..............................................................28 ANNEX F: UK EMISSIONS TRADING SCHEME ..........................................................29 ANNEX G: RETAIL OFFSET PROVIDER MATRIX ......................................................30 ANNEX H: DISCUSSION OF SELECTED RETAILERS ................................................32 REFERENCES ....................................................................................................................35 Acronyms and abbreviations AAU Assigned Allocation Units CCB Climate, Community, and Biodiversity CCBS Climate, Community, and Biodiversity Standards CDM Clean Development Mechanism CELB Center for Environmental Leadership in Business CERs Certified Emissions Reductions CI Conservation International CO2 Carbon dioxide CO2e Carbon dioxide equivalent CSR Corporate Social Responsibility DEFRA Department for Environment, Food and Rural Affairs (UK) DFID Department for International Development (UK) DOE Designated Operational Entity EB Executive Board ECCM Edinburgh Centre for Carbon Management EU ETS European Union Emissions Trading Scheme ERUs Emissions Reduction Units FCO Foreign and Commonwealth Office FF Future Forests FSC Forest Stewardship Council GHG Greenhouse gas HFCs Hydrofluorocarbons JI Joint Implementation LDC Least Developed Countries LULUCF Land Use, Land Use Change, and Forest NGO Non-governmental organisation PDD Project Design Document UK ETS United Kingdom Emissions Trading Scheme VERs Verified Emission Reductions WWF World Wildlife Fund 1. Introduction The Clean Development Mechanism (CDM), created by the Kyoto Protocol,