In a brand new sector that is evolving rapidly, understand where your company fits in the carbon credit market structure. What is the difference between the mandatory and voluntary carbon credit market? As its name suggests, the mandatory market is used by companies and governments that are legally mandated to offset their emissions. The countries that have joined these markets are those that have accepted and adopted the emission limits established in the Framework of the United Nations Convention on Climate Change. (UNFCCC) The voluntary carbon market, on the other hand, operates outside the compliance markets but in parallel, allowing private companies and individuals to purchase carbon credits on a voluntary basis. Who regulates the mandatory carbon credit market? This market is regulated through international, regional and sub-national carbon reduction schemes, such as the Clean Development Mechanism under the Kyoto Protocol, the European Union Emissions Trading Scheme (EU-ETS) and the California Carbon Market. Each ton of CO2 is measured in carbon credits or CERs (Certified Emission Reductions). These credits or CERs are generated in the implementation phase of the project; and are issued once the reduction has been credited. Projects wishing to offer CERs in the market will need to have their emission reductions validated by Designated Operational Entities (validators and verifiers) and registered by the CDM Executive Board to ensure that real and measurable emission reductions are achieved. How does the voluntary carbon credit market work? The main objective for acquiring Verified Emission Reduction (VER) credits, is to neutralize the carbon footprint, motivated mainly by Corporate Social Responsibility (CSR) and public relations. Other reasons are considerations such as certification, reputation and environmental and social benefits. Companies and individuals can acquire or buy carbon credits directly from projects, companies or carbon funds. However, as in the regulated market, all VERs must be verified by an independent third party and must be developed and calculated according to one of the existing VER standards. Basically, the main difference is that a VER (voluntary market), unlike CERs (mandatory market), cannot be used to achieve obligations under the Kyoto Protocol compliance regime. However, a CER can be accepted by entities wishing to voluntarily offset their carbon footprint. ClimateTrade operates within both the voluntary offset market and the mandatory market. We have a wide portfolio of projects with credits of all types and a professional team with extensive experience in this field.

Transparency, reliability and collaboration are core elements of the Carbon Pricing Principles developed by the International Chamber of Commerce (ICC) to support the global climate strategy. Blockchain technology can support all three of these aspects. In a webinar organized by ICC Spain and ClimateTrade to launch the Spanish translation of the ICC Carbon Pricing Principles this week, speakers emphasized the importance of a unified and fair carbon price to help global organizations adapt to the climate transition.  According to José Lindo, Co-Founder and Head of Impact at ClimateTrade, the three keywords to be considered for the correct application of the Principles are consensus, traceability and transparency. “DLT technologies like ClimateTrade bring order to the complexity of all the various carbon markets and mechanisms, creating consensus, trust, transparency and connection with different jurisdictions,” he said.  Indeed, blockchain technology is based on decentralized governance and data storage, which makes it inherently suited to the pursuit of consensus. Additionally, since all data stored on blockchain is immutable, it allows for full traceability in all transactions. A fair and ethical carbon price In terms of transparency, Lindo pointed out that with the upcoming implementation of the Carbon Border Adjustment Mechanism (CBAM) in Europe, countries will be expected to justify how they set the price of carbon emissions locally. “I’m convinced that the EU and the World Trade Organization will manage to reach an agreement on the key point: creating a fair and ethical price of carbon that jeopardizes neither European companies nor decent job generation in developing countries,” he added. All speakers agreed that, combined with CBAM, the ICC Carbon Pricing Principles (presented in English at COP26 in Glasgow but only now translated to Spanish) are set to harmonize carbon pricing mechanisms around the world.  Internalizing externalities José Luis Blasco, Global Sustainability Director at ACCIONA, noted that the carbon price is a necessary instrument to allow companies to internalize the externality that is climate change. He added that in the context of the generalized Net Zero by 2050 target, companies only have 28 years left to ensure they don’t become obsolete. However, according to him, the carbon price only begins to accelerate the transition from US$60 a ton; below this price, the mechanism has no tangible impact. While the price of carbon is currently much lower – at least in the voluntary market – companies can already integrate a shadow carbon price of US$60 or higher to internalize the climate transition in their business planning. The 10 Carbon Pricing Principles Here are the 10 Carbon Pricing Principles developed by the ICC: Focus on GHG emissions reduction as prime target, including the prevention of GHG leakage Create a reliable, predictable overall framework Promote consistency between climate, energy, trade and taxation policies Create a clear and robust transparency framework Maintain​​ accessibility to and affordability of low-carbon and clean energy sources Promote international linking of carbon pricing instruments Recognize that there is no “one-size-fits-all” single instrument Couple carbon pricing with investment in climate change mitigation and adaptation Ensure international cooperation for greater consistency globally Develop mechanisms through inclusive and transparent consultation with business and other key stakeholders The full document is available to download from the ICC website.