Carbon Credit Exchange Certification
The carbon credit market is currently undergoing several important changes. As a result, it is vital to understand how these changes affect the marketplace.
In a voluntary carbon credit exchange market, emissions reduction projects can earn credits through a project-based verification process and sell them to businesses that wish to offset their own emissions. A tradable credit represents one metric ton of GHG emissions reduced or eliminated. These credits can be used to meet a company’s emissions target under existing and developing climate-related regulations.
Verification bodies play a critical role in the integrity of the carbon credit market by verifying that projects reduce greenhouse gases. These organizations are certified by the VCS Program to ensure that projects meet rigorous rules and requirements. Whether focusing on geologic carbon storage, forestry, or agriculture, VCS-certified projects provide a credible and transparent platform for companies to mitigate their climate impact by purchasing a measurable and verified emission reduction.
The Importance of Carbon Credit Exchange Certification
While the carbon market is growing, there are concerns about its integrity in several areas. These include a lack of price transparency, the potential for fraud and money laundering, and the unclear use of offsets in corporate claims. In addition, the current infrastructure for trading, post-trade, and data management needs improvement. Creating a carbon credit exchange that provides resilient and scalable services could help address these issues.
A carbon credit exchange is an online platform that enables traders and other financial players to trade standardized products for forward delivery. This is a key requirement for many of the end buyers who need to purchase credits in order to offset their emissions. Exchanges also enable them to look at the specific characteristics of each underlying project and ensure the quality of the credit they are purchasing.
There are two main markets for carbon credits: the compliance market and the voluntary market. The former includes obligatory systems that are developed and controlled by mandated national, regional or global carbon reduction systems (compliance markets). The latter is comprised of projects that are independently certified by an international third party standard, like the Gold Standard and others, but which aren’t part of a UN scheme, such as the Clean Development Mechanism (CDM).
A key difference between these two types of markets is that the compliance market requires CERs, while the voluntary market can accept VERs. A credit is considered to be retired when it is used for a compliance purpose. For example, a credit can be purchased in the compliance market and then later sold into the voluntary market to offset a company’s emissions. However, a credit cannot be retired in the other direction as this would violate compliance market rules. For this reason, the majority of the demand in the compliance market is for CERs.