Lesson 1, Topic 1
Risks and challenges in the Voluntary Carbon Market
Besides other common challenges in the global carbon markets, some of the associated risks to the Voluntary Carbon Market are the following:
- Credibility and quality: The potential presence of ineffective projects may create a risk on ensuring real emissions reductions.
- Market oversupply: It can undermine the financial viability of projects affecting the carbon credits prices.
- Regulatory uncertainty: Evolving regulatory frameworks and policies around it may affect the demand of carbon credits directly impacting on the participants.
- Price volatility: Instability on prices may lead to a decrease on the interest of buyers and sellers on the market.
- Reputational risks: It is essential to maintain the transparency with robust procedures to mitigate any risks such as inaccurate reporting or instances of fraud which can affect the reputation and trust of the market.
- Lack of standardization: As the VCM has no standardized regulatory standard and protocols, the inconsistency in the market can affect their transparency.