The Market for Voluntary Carbon Offsets: A New Tool for Sustainable Development

Abstract

"Can carbon markets provide a new source of funding for sustainable development activities in the South? The Kyoto Protocol’s Clean Development Mechanism (CDM) was originally seen as the mechanism that would link carbon markets and sustainable development objectives in developing countries. Through the CDM, countries with greenhouse gas (GHG) reduction targets under Kyoto can buy emissions credits from carbon offset projects in developing countries, provided that those projects also contribute to the sustainable development priorities of their host countries. Unfortunately, the CDM has come under great criticism for not adequately delivering on these sustainable development benefits. The CDM tends to lead to low-cost, high-volume projects, such as HFC (hydro fluorocarbon) destruction or landfill-to-energy projects, which have few benefits for local livelihoods. Many small community-based projects are often not economically viable under the CDM because of high transaction costs and lengthy bureaucratic procedures. Furthermore, most projects are concentrated in larger economies, such as India and Brazil, and have virtually bypassed the least developed countries. However, parallel to the CDM market, a voluntary market for carbon offsets has emerged. The voluntary market consists of companies, governments, organisations, organisers of international events, and individuals, buying or selling carbon credits for reasons other than regulatory compliance."