Domestic voluntary offsets - regulatory conditions and options in industrialised countries

The voluntary market for the compensation of greenhouse gas emission emissions plays an increasingly significant role in meeting the 2°C target. Awareness of and demand for voluntary carbon credits is steadily growing, as adelphi’s market analysis on behalf of the Federal Environment Agency (UBA) revealed.

While buyers are increasingly interested in domestic carbon offset projects, the current supply of credits cannot meet this demand – even though domestic offset projects have great potential not only for emission reductions. They can also foster innovation, deliver co-benefits for the region and bring forward voluntary methods as blueprints for the compliance markets. They are therefore important instruments in advancing ambitious climate action and supporting the transformation towards low-carbon economies.

At the same time, the scope of action for domestic voluntary offset projects in Annex-I countries is limited by international, regional and national regulations on climate protection. Mitigation commitments from the Kyoto Protocol, the EU ETS and national or subnational compliance mechanisms enhance the risk of different forms of double counting and make it difficult for project developers to prove additionality.

Some Annex-I countries have already successfully implemented initiatives for the development of domestic carbon offset projects, but there is no common framework for accounting and certifying GHG mitigation activities for the voluntary market and for its embeddedness in the compliance market yet.

In a study on behalf of the German Emissions Trading Authority (DEHSt) at the Federal Environmental Agency (UBA), adelphi analysed the characteristics of initiatives in industrialised countries that generate carbon credits from domestic projects for voluntary compensation. The study aimed at identifying the respective challenges and opportunities in Annex-I countries and developed recommendations for improving the conditions in order to advance the development of a domestic voluntary market. The results were presented and discussed with European experts at a workshop in Berlin in autumn 2017. Key recommendations include: 

▸ No more niches: Regulative framework needs to proactively safeguard environmental integrity. Where emissions reductions are counted towards national targets, governments could cancel Assigned Amount Units (AAUs) or commit to not selling excess AAUs. Transparent communication can alleviate concerns t double claiming can undermine perceived environmental integrity.

▸ Assess and endorse existing voluntary carbon standards: Official government endorsement (or by anothe central institution) of voluntary offset mechanisms could offer the opportunity to build on credible stand and use existing infrastructure instead of creating parallel structures that increase the risk of double cou ting. An endorsement could take the form of a positive list of recognized standards or provide certain benchmarks.

▸ Leverage the potential of the LULUCF / AFOLU sector: As the international community is aiming for a carbon-neutral world by the end of the century, carbon sinks will become more and more important. Mos domestic offset initiatives are active in this sector, thereby providing significant experience in developing and implementing emission reduction and removal projects that the compliance market can learn from.

▸ Close the ambition gap with voluntary action: What seems to be a contradiction – using voluntary domes offsets for compliance – may, in fact, help to get on track with ambitious climate targets. This can, for example, inform discussions on the Paris Agreement, in particular article 6.4.