BEPP Set 6: Voluntary Carbon Markets

Carbon offset

A credit for an emissions reduction or removal elsewhere that a buyer counts against its own emissions

Compliance vs

voluntary markets

Compliance: government-mandated caps and allowances

Voluntary: firms buy offsets to meet their own climate targets

Additionality

A project is additional only if it wouldn't have happened without offset revenue; otherwise the savings are zero

Permanence

The reduction must be permanent; e

g

, a protected forest could later burn or be cut down

Leakage

The project causes emissions to rise elsewhere; at 100% leakage the savings are zero

Which issues also apply to compliance markets?

Additionality and permanence mainly affect offsets; leakage affects both

Why additionality can never be proven

It requires a counterfactual (what would have happened without the project), which is unobservable

How offset savings are calculated

Baseline emissions (the counterfactual) minus project emissions

REDD+

Paying landowners to avoid deforestation

REDD+ additionality concern

The baseline deforestation rate may be inflated if reference areas are more at risk (e

g

, near roads or towns)

REDD+ leakage concern

Protecting one forest may push logging to nearby unprotected forest

Cookstove additionality concern

Households might have switched to cleaner stoves anyway

Cookstove leakage concern

Less charcoal demand lowers its price, which can increase charcoal use elsewhere

Cookstove measurement concern

Hard to verify whether stoves are actually used as intended

Why over-crediting is harmful

It overstates reductions (greenwashing) and gives a false sense of progress that can crowd out real emissions cuts

Offsets in compliance markets

Real emissions fall less while offsets fill the gap on paper; usually capped at a small share (5–10%) of obligations

Why voluntary markets declined

Reports that many offsets were worthless undermined trust, and prices and volume collapsed

Trade-off of high-quality offsets

The most credibly additional offsets (e

g

, carbon capture) are expensive, which weakens the cheap-reduction appeal of offsets