Digital MRV can spur growth in voluntary carbon credit market

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NRI - Nomura Research Institute

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23/03/2023 Article
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Kengo Ohta

NRI

Expert, Digital Wholesale Finance Platform Department

CO2 reduction through voluntary carbon credits

Carbon trading, whereby CO2 emission allowances are bought and sold, is garnering renewed attention as an important means of limiting global warming to a maximum of 1.5°C above the earth’s preindustrial average temperature. By creating economic incentives, carbon trading aims to fund activities that can reduce CO2 emissions more effectively, thereby accelerating decarbonization. Carbon trading schemes can be broadly classified based on whether they are (1) publicly or privately operated and (2) compulsory or voluntary.

In the lower right quadrant of the table below are privately operated voluntary carbon credit (VCC) schemes through which companies and other CO2 emitters voluntarily purchase credits to offset their own CO2 emissions. The credits they purchase are supplied by third-party projects that reduce CO2 emissions through such means as displacing fossil fuel consumption with renewable (e.g., solar, wind, hydro, biomass) energy or naturally sequestering atmospheric CO2 through, e.g., reforestation.

Because VCC schemes are not compulsory, they have yet to be widely adopted. To cap global warming at +1.5°C, the VCC market’s CO2 trading volume reportedly must grow 15-fold between 2019 and 2030. In 2021, it grew nearly 50%, from 230Mt to 350Mt.

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