Market Size and Scope
Table 2 compares the market size and the scope of various offset programs and providers, to the extent that information could be compiled (as of Jan 2011).
Compiling estimates of the size or volume of the offset market is challenging because metrics vary and information is often proprietary, especially within the voluntary market. Some figures for offset market activity represent total offset transactions in a given year, including both primary (by original offset providers) and secondary (resold offsets) transactions, some are for primary transactions alone, while others represent the total offsets registered or certified (which may include expected offsets generated in future years) or issued during a given year. Readers should thus view market size estimates with caution, and with careful attention to precisely what is being counted. Those interested in detailed and up-to-date assessments should consult market analyst publications such as those produced by Point Carbon (fee required), Bloombergy New Energy Finance (fee required) and Ecosystem Marketplace; as well as the annual State of the Carbon Market review published by the World Bank and the annual State of the Voluntary Carbon Market published by Ecosystem Marketplace and Bloombergy New Energy Finance.
Offset prices tend to vary based on the project type, its location, the market demand and the stringency of the offset program requirements. Offset prices are driven primarily by the supply of and demand for offsets and allowances. It is therefore not surprising that offsets for the mandatory market fetch considerably higher prices than voluntary offsets. This is most apparent when comparing the price of CDM offset credits to those available on the voluntary offset market.
Prices can vary by an order of magnitude depending on the program, its requirements and, perhaps most importantly, the markets in which the offsets are sold. Prices for CDM and JI offsets are linked to the broader markets for EU ETS and Kyoto allowances. Depending on the extent to which delivery of CERs and JI Emission Reduction Units (ERUs) is guaranteed, they can garner upwards of 100% of the trading price of EU allowances. Even though in principle CERs, ERUs, and EU allowances are fully fungible, countries have ‘supplementarity’ limits on the amount of CERs and ERUs they can purchase to meet their compliance obligation. To the extent that these limits are expected to be binding, and that the supply of CERs and ERUs is expected to exceed allowable demand under the supplementarity limits, CERs and ERUs are expected to trade for prices lower than allowances.
Prices for voluntary offset credits vary significantly based on the standards used, project types, project locations, offset quality, delivery guarantees and contract terms. There are no readily available metrics for consumers to determine either how the price of offset credits sold in the voluntary market is determined, or the role the offset price has on the quality of the offset purchased.