Carbon Markets
The financial market for carbon trading is now firmly established. There are two sectors that fall under the global carbon market: the compliance or mandatory market, and the non-compliance or voluntary market.
Compliance Market
Carbon offsets sold on the compliance market are subject to international certification standards and are purchased in order to comply with international, national or regional legally binding agreements. The Kyoto Protocol, a treaty associated with United Nations Framework Convention on Climate Change, is the first and only international treaty on climate change that commits countries to stabilize greenhouse gas emissions.
The Kyoto Protocol was adopted in Japan in 1997, but entered into effect in February 2005. Currently 184 Parties of the Convention have ratified the Protocol. The Protocol calls on Annex I (those identified as “industrialized” countries) to reduce their GHG emissions, and provides three mechanisms in which to move forward in achieving emission reductions. The three mechanisms—Joint Implementation, Emissions Trading and the Clean Development Mechanism (CDM)—involve the buying and selling of carbon credits on the global market. In 2009 the international regulated or mandatory markets transacted 8,625 MtCO2e (million tons of carbon dioxide equivalent), valued at US$144 billion (Hamilton et. al, 2010).
Voluntary Market
The voluntary carbon market allows companies and individuals to buy offsets, thus mitigating their contribution to GHG emissions.
The emerging global ‘non-compliance’ or ’voluntary’ carbon market has emerged from private sector actors that are interested in purchasing carbon offsets even if they are not UNFCCC certified. Reasons behind voluntary carbon offset purchasing can vary greatly—individuals might purchase offsets to reduce their personal carbon footprints; businesses might purchase offsets in preparation of an impending compliance market; companies might purchase offsets to comply with their mission of corporate social responsibility or for marketing strategies.
Whatever the reason behind voluntary purchases, there continues to be a strong voluntary market demand (although the voluntary carbon market remains miniscule in comparison to the mandatory market). In 2010, 131.2 MtCO2e were transacted in the voluntary carbon market, amounting to US$424 million (Peter-Stanley et. al, 2011).
Carbon Tanzania currently operates with funds generated through the voluntary market. The main source of funding is donations derived from ethically minded tourists who wish to offset the carbon released as a result of their air travel to and from Tanzania. This is a logical mitigation for people who are travelling to Tanzania to experience its natural wildlife and habitats since the funds are used directly for a local forest habitat conservation project.
For more information on the voluntary carbon market see: The State of the Voluntary Carbon Markets 2011, EcoSystems Marketplace
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