Voluntary Emmission Reductions

Voluntary Emission Reduction (VER) is a general term used to describe a class of carbon credits produced outside of a legal framework. In the past decade, the VER market has grown rapidly in response to an increased demand for VERs in the voluntary offset market.

A VER typically represents one metric ton of green house gas emissions (MtCO2e). The credit is determined by calculating the reductions in greenhouse gas emissions from a specific project. It acts as a financial instrument used to transfer greenhouse emission reductions rights to entities or individuals that want to offset their own emissions. A retired VER, one that is taken off the market permanently, is considered an offset.

Background

Voluntary emissions reductions are sold as part of an over the counter, voluntary carbon offset market, which operates alongside of "regulated" or “compliance markets,” such the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC), the Regional Greenhouse Gas Initiative (RGGI), and the New South Wales Greenhouse Gas Abatement Scheme (GGAS).¹

The voluntary carbon offset market is highly fragmented, with many diverse buyers, sellers, projects developers and project types.² No one industry definition exists for a VER, and no one set of standards exists to ensure the quality of credits. VERs cannot be sold into compliance markets.

Offset projects that usually generate these types of credits are:

Renewable energy -- these projects create power from sources such as solar, wind, geothermal, hydropower, and biomass. The credits generated from these types of projects are generally more expensive than other credits, but considered more reliable.
Energy efficiency -- these projects involve efforts to change behavior or install new equipment of resources. They can involve projects from changing light bulbs to installing energy efficient irrigation systems.
Biological sequestration -- these projects create land-use practice that leads to vegetation growth or soil changes that sequester carbon. These projects have historically come from tree planting projects, and more recently from preventing deforestation.
Methane destruction -- these projects involved the destruction of methane from landfills, livestock manure, and coal mines. Methane has a relatively high global warming and these projects are relatively easy to perform.

VER Market

Project developers generate VERs. They are then usually sold to retailers or aggregator, who can sell them to individuals and organizations as carbon offsets, in which case they are taken off the market and cannot be resold, or to investors who hold them for future use. VERs can be purchased off the websites of offset providers or directly from project developers or retailers. In 2008, at least 170 organizations around the world were engaged in selling voluntary carbon offsets.³

One recent survey found that the prices of VERs in 2007, based on the volume-weighted average by project type, ranged from US $2.5/t to US $12.2.⁴ Price is dependent on the project selected and the standards and procedures used by the project developer and offset provider to ensure that the offsets are of a high quality.

Voluntary offset standards

Consumers who are buying carbon offsets are frequently advised to know the quality of the credit they are buying. Some VERs are verified according to stringent standards, others are not. Several recent publications have provided evaluations of the many different standards being used by offset providers.⁵ This outside scrutiny may bring greater harmonization to the voluntary offset marketplace.

In order to ensure that offsets will actually reduce green house gas emissions in the projects they are financing, standards should be in place to ensure that the credits are verified by independent third parties, that the green house gas savings are additional to those that would have occurred anyway through a business-as-usual scenario, that the project does not increase emissions elsewhere, that the emission reductions are permanent, and that the credits are tracked and registered to indicate ownership, avoid double counting, and provide a mechanism to verify when they are retired.

Footnotes

¹: Anja Kollmuss, et al. A Review of Offset Programs: Trading Systems, Funds, Protocols, Standards and Retailers, Stockholm Environment Institute, October 2008.

²: Katherine Hamilton, et al., Forging a Frontier: State of the Voluntary Carbon Markets 2008, Ecosystem Marketplace, New Carbon Finance, May 2008.

³: Tejas Ewing, The Ends Guide to Carbon Offsets 2008, ENDS, 2008, pg 3.

⁴: Katherine Hamilton, pg. 39-40.

⁵: See footnotes 1 and 3. See also, Anja Kollmuss, Helge Zink, Clifford Polycarp, Making Sense of the Voluntary Carbon Market: A Comparison of Carbon Offset Standards, WWF, 2008; A Consumer’s Guide to Retail Carbon Offset Providers, Clean Air Cool Planet, December 2006.

Resources

A Consumer’s Guide to Retail Carbon Offset Providers, Clean Air Cool Planet, 2006

A Review of Offset Programs: Trading Systems, Funds, Protocols, Standards and Retailers, Stockholm Environment Institute, 2008.

Carbon Offsets: The U.S. Voluntary Market is Growing but Quality Assurance Poses Challenges for Market Participants, United States General Accounting Office (GAO-08-1048), 2008

Forging a Frontier: State of the Voluntary Carbon Markets 2008, Ecosystem Marketplace, New Carbon Finance, 2008

Making Sense of the Voluntary Carbon Market: A Comparison of Carbon Offset Standards, WWF, 2008.

Offsetting Emissions: A Business Brief on the Voluntary Carbon Market, Ecosytem Marketplace, Business for Social Responsibility,2008

The Carbon Neutral Myth: Offset Indulgences for Your Climate Sins, Carbon Trade Watch, 2007

The Ends Guide to Carbon Offsets 2008, ENDS, 2008

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