Voluntary vs. Compliance

Two carbon markets:

	Voluntary	Compliance
Required:	NO	YES
Tool:	Carbon Offsets	Carbon Credits
Participants:	Registries (regulator), Project Developers, Businesses, Individuals	Government (regulators), Businesses

Voluntary Markets

The VCM has no required participation. Instead, it operates on an independent desire to neutralize a carbon footprint. It allows institutions and individuals the opportunity to compensate for their emissions and support projects fighting climate change.

To date, participants of the VCM have channeled more than $5 billion into carbon offset projects around the world. By purchasing offsets, individuals and businesses create long-term financial strategies, meet personal sustainability goals, and promote a better public reputation. The profit from carbon offset sales recycles back to the developers and provides essential funding for future offset projects.

Compliance Markets

In compliance markets, the government issues pollution permits, or carbon credits, to keep industries within “permissible” pollution levels. These markets are large in scale and usually have a specific purpose, such as reducing emissions within a certain timeframe, or for a specific industry.

If a firm goes over the permitted cap, it’s required to buy enough carbon credits to make up for the difference. If a firm is under the cap, it is permitted to sell the credits it using to firms who were over the cap. This model financially incentivizes companies to create sustainable operations by making businesses pay the price to pollute. However, this system does not directly address emissions in the way that the VCM does.

Comparing the Impact

Both markets help the environment in different ways and have varying impacts.

The compliance market follows limitations set by the government, which creates a financial incentive for companies to reduce internal emissions. Over the long term, this system pushes companies to turn their operations sustainable. However, the total output of emissions is reliant on the opinion of governments, who are organizations that have historically been inadequate at climate action.

In order to stave off the climate crisis, we need solutions that can reduce emissions in the short term while creating long-term financial incentives. This is where the voluntary market steps in. By driving investment into projects that produce tangible, specific emissions that have been avoided or captured, the VCM provides the immediate positive climate action that the world needs.