What is the difference between the Voluntary Carbon Market and the Compliance market?

The carbon market is split into two parts: the voluntary carbon market and the compliance (or regulated) carbon market. Here's what makes them different:

1. Why they're used and who uses them:

Voluntary Carbon Market: Here, businesses buy carbon credits on their own to balance out their greenhouse gas emissions, show they care about social responsibility, or support environmental projects. No one is forced to take part by law, and businesses often use this market to boost their reputation or reach sustainability goals.

Compliance Carbon Market: This market is used because of mandatory emissions reduction targets and laws set by governments or regional bodies. Companies and other regulated groups must have enough carbon credits to balance their emissions, or they might face fines. The main goal of the compliance market is to make sure these groups meet their emission reduction requirements.

1. Standards and who watches over them:

Voluntary Carbon Market: Carbon credits in the voluntary market are usually created under various GHG programs, like the Verified Carbon Standard (VCS), Gold Standard, or International Carbon Registry (ICR). These programs give guidelines for how projects should be designed, monitored, and verified.

Compliance Carbon Market: Credits in the compliance market are generally created under specific regulations, like the European Union Emission Trading System (EU ETS), the Regional Greenhouse Gas Initiative (RGGI) in the United States, or the Clean Development Mechanism (CDM) under the Kyoto Protocol. These markets have stricter rules and are watched over more closely to make sure credits meet regulatory requirements.

1. Price and how easy they are to buy and sell:

Voluntary Carbon Market: Prices for carbon credits in the voluntary market can change more and are often lower than in the compliance market. This is due to things like the range of projects, as well as the market being voluntary, which can mean less demand and fewer transactions.

Compliance Carbon Market: Credits in the compliance market usually have more stable prices and are easier to buy and sell, as regulated groups have to buy credits to meet their requirements. Prices are often influenced by factors like allowance caps, market stability mechanisms, and regulatory changes.

Both markets are important in fighting climate change, but they serve different purposes and have different features. The voluntary market focuses on voluntary actions and a wider range of projects, while the compliance market aims to enforce mandatory emissions reductions within regulated sectors.