The Market for Voluntary Carbon Emission Offsetting (VCM)

The market for voluntary carbon emissions offsetting (VCM) is an unregulated, open market system that offers carbon credits to investors from the private sector to compensate for their emissions and enable to promote “climate-neutrality”. Carbon credits are generated from either emission avoidance or removal project activities. The VCM faces structural shortcomings in all three dimensions of the market: the systemic (market), the supply and the demand side. Multiple conflicts of interest enable systemic over-crediting accompanied with questionable narratives regarding credit quality criteria (e.g. additionality, permanence, leakage) leading to an oversupply of low-quality credits in the market. Project specific and information regarding pricing and transactions is not transparent leading to information asymmetries, disturbed trust of investors and low public acceptance. Due to these shortcomings, the current potential of the VCM to considerably contribute to global decarbonization and sustainable development is low. Certain measures, however, can help to increase the market’s potential.