Use of VCM Carbon Credits in the Compliance Carbon Market
The use of Voluntary Carbon Market (VCM) carbon credits in the Compliance Carbon Market (CCM) depends on the specific rules and requirements from each specific scheme. Some compliance mechanisms have provisions that allow for the use of eligible voluntary carbon credits as a compliance instrument.
However, the acceptance and recognition of voluntary carbon credits within the compliance carbon market are subject to certain eligibility criteria, verification processes, and quantity limitations. These measures aim to ensure the environmental integrity and credibility of the offsets used for compliance purposes, and to avoid any potential risks of double counting or double claiming of emission reductions.
The use of carbon credits issued in the VCM can generate certain benefits to the CCM, such as:
- Cost-effectiveness and flexibility: Allowing entities to access a broader range of issuances options providing in some cases more economical and cost-effective alternatives.
- Increasing the supply of compliance mechanisms: Including voluntary carbon credits can help to address scarcity in a compliance scheme, increasing liquidity and market stability.
- Urging voluntary climate action: Voluntary emission reduction projects can be recognized within a regulatory framework which incentivizes participation and investment in the VCM.
Case: California Cap-and-Trade
As explained previously, the California Cap-and-Trade Program started operations in 2012, being the largest carbon trading scheme in the United States of America.
This scheme currently covers a cap of 294.1 MtCO2e (data from 2023) and the offset allowance used for compliance corresponds to 4% until 2025, when it will be raised to 6%.
The 6 compliance protocols allowed are: US forests, rice cultivation, Urban forests, mine methane capture, livestock, and ozone depleting substances.
The listed voluntary carbon standards approved by the California Air Resources Board (CARB) are: Verra (VCS), Climate Action Reserve (CAR), and American Carbon Registry (ACR).
Case: Mexican ETS
The Mexican Emission Trading Scheme entered into force in January 2020 and it is the first one in Latin America. The scheme started a Pilot Program from 2020 to 2022.
The volume of the market reached 273,1 MtCO2 in 2021 and the use of carbon credits is allowed up to a 10% of the compliance obligations.
SEMARNAT (Environment and Natural Resources Secretariat), which is a government body, is currently developing a domestic carbon market to generate the credits.
Allowed project types are: Afforestation and reforestation (including REDD+), agriculture, energy efficiency, landfill and alternative waste treatment and renewable energy (wind and solar).
The international voluntary standards currently in use are: Clean Development Mechanism (CDM), Verra (VCS), Gold Standard (GS), Climate Action Reserve (CAR), and Plan Vivo.
Case: Colombian ETS
The Colombian Emission Trading Scheme which is currently under development, is also expected to allow the use of carbon credits issued in the Voluntary Carbon Market.
The domestic offset scheme in Colombia is in operations and some of the most common project types as defined by the International Accreditation Forum in IAF MD 14 are:
- Forestation and reforestation (including REDD+)
- Power generation and power transactions.
- Exploration, extraction, production refining, pipeline distribution of petroleum and gas
- Pulp, paper and printing
- Agriculture, forestry and LUF
- Fugitive emissions from fuels
Some of the listed approved voluntary carbon standards include:
- Verra’s VCS, Climate, Community and Biodiversity standards, SD VISta.
- Forest Carbon Partnership.
Case: South Africa ETS
The international voluntary standards currently in use are: Clean Development Mechanism (CDM), Verra and Gold Standard.
Thailand Emission Trading Scheme is currently under consideration.