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Voluntary carbon markets: overview of frameworks

An introduction to the international and national frameworks that support voluntary carbon markets, including regulatory features that enable the creation and trading of carbon credits. It also addresses key issues such as avoiding double-counting, aligning with Nationally Determined Contributions (NDCs), and ensuring local communities are protected and benefit from carbon projects.

Why do voluntary carbon markets exist?

Voluntary carbon markets exist to facilitate the sale and purchase of verified emissions reduction units (VERs, also known as carbon credits). Carbon credits are used to offset emissions and demonstrate compliance with climate goals. For organisations with net zero or carbon neutral plans, hard-to-abate emissions occurring after the ‘net zero’ date must be addressed through carbon dioxide removal (CDR).

Net zero targets

A net zero company will set validated near‐term and long‐term Science Based Targets for its full value chain emissions in line with a 1.5°C pathway. It can neutralise any remaining hard‐to‐decarbonise emissions with certified greenhouse gas removal credits.

Carbon neutral organisations

A carbon neutral company will measure its carbon footprint and develop and implement a Carbon Management Plan (including a reduction target). Residual emissions will be offset by high quality, certified carbon removal credits.

Overview of voluntary carbon market framework

Voluntary carbon emission credits are issued according to voluntary carbon standards. Established voluntary carbon standards include:

Gold Standard (GS) – over 3,500 projects in over 100 countries, and a total of 348 million tonnes of CO2e reduced/removed.
Verra's Verified Carbon Standard (VCS) – over 2,300 projects, and over 1.2 billion tonnes of GHG reduced/removed.
Climate Action Reserve Standard (CAR) – limited in geographical scope: only North America.
American Carbon Registry Standard (ACR) – 788 projects, and over 289 million tonnes of CO2e reduced/removed.
ART/TREES Standard – Architecture for REDD+ Transactions.
Plan Vivo Standard – 1,703 communities involved, 10.8 million tonnes of CO2e in planned emission reductions.
Natural Forest Standard – Jurisdictional REDD+ Crediting Program.
Puro.earth Isometric.

Selected voluntary carbon standards

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Jurisdiction	Geneva, Switzerland
Type of offset projects	Renewable energy (including methane‐to‐energy projects) and end‐use energy efficiency. No large hydro above 15 MW
Governance body	International (managed by private entity)
Accounting and registries	GS Registry of projects and VER credits Administered by APX Inc. (who also administers CAR Registry)
Types of accounts available	General account Project developer Reviewer (or a combination of these three) Also, registry allows selection between private and public account when registering
Types of transactions allowed	Offset credit transfer include transfer to a purchaser with an account in the GS Registry and transfer to another own account
Validation procedure	Validation by accredited validation and verification body
Passing on of benefit after credit is retired / expired?	No. When a user retires credits, they’re retired permanently. Neither the account holder nor any third party can take the benefit of the credit after that. The GS Registry doesn’t take any action to exercise any right or interest, or deal with or otherwise use, the retired credit and considers that no person has any further rights to that credit.
Environmental integrity	Additionality: usually determined project‐by‐project / relies on UNFCCC rules Double counting: unique serial number Overall mitigation: conservativeness is a requirement when establishing baseline and standardisation
Monitoring, Reporting and Verification	Methodologies: CDM, CDM‐based and new methodologies Monitoring: for GHG uses UNFCCC standards Sustainability defined in GS Project Passport Reporting: Monitoring reports, (including GHG and sustainability aspects) Verification: DOE and GS Secretariat
Limitation of liability of registry	The GS Foundation is not liable for incidental, consequential, special, punitive, statutory or indirect damages, loss of profits, loss of revenues, or loss of use. Liability in any case for damages arising out of or related to certification services do not exceed lesser of (a) amount the user has paid to the GS Foundation or (b) the contract price for the specific services. [paraphrased from ToU]
Linkage to carbon pricing and other policies	Cap and Trade schemes (ETS): ICAO, voluntary market Carbon Taxes: Colombia

Jurisdiction	Washington, DC, US
Type of offset projects	All projects – except those that can reasonably be assumed to have generated GHG emissions primarily for the purpose of their subsequent reduction, removal or destruction (eg new HCFC‐22 facilities)
Governance body	International (managed by private entity)
Accounting and registries	VCS Registry Administered by Verra (who also administers CCBS Registry)
Types of accounts available	General account Project proponent Retail aggregation End user All Verra Registry accounts consist of a primary account, active sub‐account(s) and retirement sub‐account(s)
Types of transactions allowed	Offset credit transfer may be made to another account holder active sub‐account back to primary account bulletin board and retirement sub‐account
Validation procedure	Validation by accredited validation and verification body
Passing on of benefit after credit is retired / expired?	No. As mentioned above, all accounts at the ACR Registry have a primary account, active sub‐account(s) and a retirement sub‐account. When credits are retired, they’re placed on the retirement sub‐account of an account, through which they are removed from circulation so they can no longer be transferred between account holders or within a single account. However, when selecting a retirement sub‐account, a "beneficial owner" can be selected. This is the entity that will ultimately benefit from the retirement.
Environmental integrity	Additionality: usually determined project‐by‐project Double counting: secure registry system Overall mitigation: use of conservative assumptions, values and procedures to ensure that net GHG emission reductions are not overestimated
Monitoring, Reporting and Verification	Methodologies: CDM, CDM‐based, new methodologies and CAR (except for forest protocols) Monitoring: as defined in each methodology (depending on applicable methodology) Reporting: Monitoring reports, no specified frequency Verification: VCS approved auditor and staff
Limitation of liability of registry	User assumes full responsibility and risk of loss. No claim whatsoever can be made against Verra or any independent contractors – the only exception is where the loss was caused by Verra's wilful misconduct. [paraphrased from ToU]
Linkage to carbon pricing and other policies	Cap and Trade schemes (ETS): California, Quebec, ICAO (TBC), voluntary market Carbon Taxes: Colombia

Jurisdiction	Los Angeles, California, US
Type of offset projects	Renewable energy (including methane‐to‐energy projects) and end‐use energy efficiency
Governance body	International (managed by private entity)
Accounting and registries	CAR Registry Adiministered by APX Inc. (who also administers GS Registry)
Types of accounts available	Project developer Verification body Trader / broker / retailer Client Aggregator Aggregation Participant Reviewer
Types of transactions allowed	Offset credit transfer include transfer to another of the credit holder's own active or retirement accounts and transfer to another account holder
Validation procedure	Validation by approved, ISO‐accredited verifier through standardised report uploaded to CAR
Passing on of benefit after credit is retired / expired?	No. All retirements are permanent and the benefit of the retirement cannot be passed on once the retirement transaction has been completed. However, retirements can be made on behalf of third parties. This is an exception to the beneficial ownership rules in section 12.4 of the Terms of Use.
Environmental integrity	Additionality: not project‐by‐project; GHG reductions must be additional Double counting: secure registry system Overall mitigation: mention of conservative assumptions, values and procedures to avoid overestimation
Monitoring, Reporting and Verification	Methodologies: Top‐down, and CDM based. Monitoring: as defined in each methodology (depending on which is applicable) Reporting: Monitoring reports, no specified frequency Verification: Accredited Verification Body / Climate Action
Limitation of liability of registry	User assumes full responsibility and risk of loss resulting from use of the program, unless the loss was caused by CAR's willful misconduct. In any way, whether caused by negligence of CAR or otherweise, damages are limited to an aggregate amount equal to the fees paid by the user during the one‐year period preceding the claim. [paraphrased from ToU]
Linkage to carbon pricing and other policies	Cap and Trade schemes (ETS): California, Quebec, voluntary market

Jurisdiction	Arlington, Virginia, US
Type of offset projects	All projects – including renewable energy, energy efficiency, all GHG reduction from industrial processes, land use, land use change and frrestry, carbon capture and storage, livestock and waste handling and disposal
Governance body	International (managed by private entity)
Accounting and registries	ACR of projects and credits issued
Types of accounts available	Transaction account Corporate account Project developer Verifier Also, resgitry allows selection between public and private account when registering All ACR Registry accounts consist of a primary account, active sub‐account(s) and retirement sub‐account(s)
Types of transactions allowed	Offset credit transfer may be made to another account holder own active sub‐account back to primary account and any retirement sub‐account
Validation procedure	Validation by approved, ISO‐accredited third‐party entities
Passing on of benefit after credit is retired / expired?	No. As mentioned above, all accounts at the ACR Registry have a primary account, active sub‐account(s) and a retirement sub‐account. When credits are retired, they are placed on the retirement sub‐account of an account, through which they are removed from circulation so they can no longer be transferred between account holders or within a single account. However, group retirement sub‐accounts can be established.
Environmental integrity	Additionality: test against a performance standard or three‐prong test (regulatory context, common practice, implementation barriers) Double counting: unique serial number within the region and annual attestation of ownership Overall mitigation: through conservative baselines
Monitoring, Reporting and Verification	Methodologies: CDM‐based and new methodologies bottom‐up and top down Monitoring: Defined in approved methodologies Reporting: Monitoring reports, no specified frequency Verification: Third party verification by ACR‐approved validation and verification bodies
Limitation of liability of registry	Account holder assumes full responsibility and risk of loss resulting from use of the registry. The registry administrator and AP's liability for the registry is limited to an aggregate amount equal to the lesser of (a) the fees paid by the user during the one year and (b) USD50,000. [paraphrased from ToU]
Linkage to carbon pricing and other policies	Standard is eligible under California cap‐and‐trade program

What do transactions in the voluntary carbon market look like?

Project, funding and transaction structures in the VCM are as varied as in any other field.

Common features include:
- A third party verifies carbon emissions reductions/removals.
- Using a registry to create and transfer carbon credits (usually associated with the chosen carbon standard).
- Sale of carbon credits and underlying mitigation outcome via contracts (emissions reduction purchase agreements, ERPAs).
- Varied recipients of carbon credits, including corporate buyers in the market, investors in the project, and intermediaries/brokers.

Legal structure of project‐based emission reduction purchase agreements (ERPAs)

Market overview

Features of national regulation that can support carbon credit creation and trading

Example: EU Carbon Removals and Carbon Farming (CRCF) Regulation

In April 2024, the European Parliament adopted the provisional agreement on the CRCF Regulation. It aims to develop a voluntary Union certification framework for permanent carbon removals, carbon farming and carbon storage in products, with a view to facilitating and encouraging the uptake of high-quality carbon removals and soil emission reductions, in full respect of the biodiversity and the zero-pollution objectives, as a complement to sustained emission reductions across all sectors.

The CRCF Regulation:

defines quality criteria for different types of technology-based and nature-based CO2 removals (including geological storage and permanently chemically bound carbon) and carbon farming (including agroforestry and peatland re-wetting); and
provides detailed rules on:
- quantifying permanence to ensure the long-term storage of carbon removals;
- additionality – ie ensuring that carbon removal or soil emission reduction activities go beyond what’s already required by law or standard practices;
- storage, monitoring, and liability;
- co-benefits and sustainability;
- certification bodies – who should have the required competences and skills to carry out independent third-party auditing to ensure accurate and transparent verification. The bodies should be accredited by national accreditation authorities or be recognised by a national competent authority; and
- re-certification intervals – all activities require re-certification audits at least every five years which verify compliance with quality criteria.

The European Commission will provide details on methodologies to be adopted for CO2 removals in delegated regulations.

The CRCF Regulation establishes a union-wide registry for removals to ensure transparency and traceability of certified units, and to avoid the risk of fraud and double counting.

Certification schemes must be approved by the European Commission. Certification bodies will be subject to reporting requirements, including technical competence, reliability, transparency and independent auditing.

Delegation and committee procedure to determine detailed annexes and calculations. Before adopting a delegated act, the Commission will consult experts designated by each member state.

Avoiding double‐counting

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Double-counting is when one or more companies claims to have reduced or removed emissions more than once (for instance, two organisations offsetting one tonne of GHG emissions referring to the same tonne of GHG removal).

There’s always a risk of double‐counting when claiming ownership of a non‐tangible outcome like emissions reduction.

Voluntary emission reduction unit certificates don't convey legal title to the underlying mitigation claim, which is conferred contractually. The holder of a certificate/unit doesn't necessarily have the contractual right to claim the underlying mitigation. If somebody else owns the underlying mitigation right and exercises it, this could lead to double‐counting.

Counting the same emission reductions/removals more than once undermines the ability to track a net zero pathway.

Greenwashing/misleading statements or advertising.

Emissions impact – counting the same reductions or removals more than once reduces the real‐world impact.

Interacting with Nationally Determined Contributions (NDCs)

What are NDCs?

NDCs are national contributions to reducing emissions and adapting to the impacts of the climate crisis prepared by a party to the Paris Agreement.

NDCs set out the contributions the nation intends to achieve. Nations then implement domestic measures with the aim of achieving the objectives of the contributions.

Interacting with voluntary carbon markets

There’s an overlap of mitigation outcomes between mechanisms under Article 6 of the Paris Agreement and the voluntary carbon markets.

To avoid double‐counting of mitigation outcomes, the host state should make corresponding adjustments (authorisation).

Protecting local communities and ensuring they benefit from carbon projects

To achieve a just climate transition, it's vital that carbon emission reduction/removal projects respect and protect local communities and involve them in the benefits generated by carbon projects.

Key considerations:

Protecting human rights, particularly in relation to existing use of land earmarked for the project and surrounding land.
Free prior informed consent (FPIC) is vital as part of respecting the rights of local people and promoting the long‐term success of the project to minimise land rights disputes and emissions reversals and leakages.
Considering, promoting and mitigating negative impacts on related environmental and social factors that could impact local communities eg biodiversity, access to water, and rights of way.

Benefit sharing

Where land belonging to or used by local people is used for carbon emissions reduction projects, the benefits from the projects should be shared with the local community.
Participants in voluntary carbon markets should consider whether a benefit-sharing proposal provides a tangible benefit to local communities. Fairly sharing revenue and carbon credits and meaningful reinvestment are usually appropriate alongside project‐specific and incidental benefits (eg ongoing use of land, shade, harvests).