Introduction to Offset Markets
Carbon markets exist under both compliance schemes and as voluntary programs. Compliance markets are created and regulated by mandatory national, regional or international carbon reduction regimes, such as those reviewed in the Policy Information section of the CORE website. Voluntary markets function outside of compliance markets and enable companies and individuals to purchase carbon offsets on a voluntary basis with no intended use for compliance purposes..
The Compliance Market
The biggest compliance market is created by the Kyoto Protocol. In 1997, the United Nations Kyoto Protocol established legally binding greenhouse gas reduction targets for developed countries (referred to as “Annex 1” countries). On average, the Kyoto Protocol asks Annex 1 countries to reduce their emissions 5.2% below their 1990 levels between 2008 and 2012. These are national-level commitments, which most countries will meet in practice by delegating their emissions targets to individual industrial entities, such as utilities and manufacturing companies, and domestically establishing legally binding requirements to keep emissions within their targets.
The Kyoto Protocol established three Flexible Mechanisms to allow Annex 1 countries to meet their targets by trading carbon credits or emission reduction units. These mechanisms are: Emissions Trading, Joint Implementation, and the Clean Development Mechanism.
The Voluntary Carbon Market
The voluntary carbon market functions outside of the compliance market. It enables businesses, NGOs, and individuals to offset their emissions by purchasing offsets independent of Kyoto and local regulatory systems. Since it is voluntary, it does not have a specific, well-defined, unique regulatory apparatus, and is actually a mix of many different types of activities, actors, and standards.
For an overview of the standards used in the voluntary market, go here.
For an in depth look at mandatory and voluntary programs and standards, go to our policy section and choose the program in the menu on the left.