Source: Adapted from K. Hamilton, M. Sjardin, T. Marcello and G. Xu, Forging a Frontier: State of the Voluntary Carbon Markets 2008 (Washington DC: Ecosystem Marketplace and New Carbon Finance, 2008), p. 57.

in Zürich, only develop projects which meet Gold Standard criteria. This enables myclimate to situate itself as a provider of 'high quality' carbon offsets, distinguishing itself from other less reliable providers, and thus permitting the company buying the credits to use the Gold Standard label for marketing purposes. That this is effective is shown by the price differential between Gold Standard VERs and others - a project approved under Gold Standard rules attracts around double the price in the market for VERs than the average.26 Likewise, the VCS, developed by the Climate Group, the International

26 New Carbon Finance, Voluntary Carbon Index, first edition (September 2008), p. 2. See, accessed 13 November 2008.

Emissions Trading Association and the World Business Council for Sustainable Development in 2006 as a pilot standard for use in the market, seeks to provide a 'robust global standard, program framework and institutional structure for validation and verification of voluntary GHG emission reductions'.27

Besides issues of environmental integrity, some standards address the social dimensions of voluntary projects. For example, The Climate, Community and Biodiversity (CCB) standards,28 released in 2005, aim to 'identify land-based carbon projects that deliver robust GHG reductions while also delivering net positive benefits to local communities and biodiversity'. These provide gold, silver and standard certification for projects depending on how many of their criteria are satisfied. These range from required criteria which include additionality, baseline issues and leakage assessment through to extras such as employing stakeholders in project management, worker safety and adaptive management. Given the fatigue and confusion generated by the proliferation in voluntary standards, and to build on existing capacity, one thing CCB does is build on the use of existing certifiers authorised under Kyoto or by the Forestry Stewardship Council (a private forestry products certification scheme), for example, as third party evaluators of whether a project deserves to be certified.

As well as standards governing voluntary carbon market projects, there are also standards which govern the voluntary reporting of emissions. These include the WBCSD-WRI Greenhouse Gas Protocol for corporate GHG reporting, the Carbon Trust's Carbon Footprint Measurement Methodology or Le Bilan Carbone in France. There is an interesting dynamic between formal and informal regulation here. The Greenhouse Gas Protocol (GHG Protocol) was designed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). In 2006, the International Organization for Standardization (ISO), a global industry standards body, adopted the Corporate Standard as the basis for its ISO 14064-1: Specification with Guidance at the Organization Level for Quantification

27 VCS, Voluntary Carbon Standard Program Guidelines (18 November 2008). See Guidelines%202007_1.pdf.

28 CCBA, Climate, Community and Biodiversity Project Design Standards, second edition. (Arlington, VA: Climate, Community and Biodiversity Alliance, 2008), available at Edition_december_2008.pdf.

and Reporting of Greenhouse Gas Emissions and Removals. On December 3rd 2007 ISO, WBCSD and WRI signed a Memorandum of Understanding to jointly promote both global standards.29 As well as improving corporate climate governance, organisations such as the Carbon Fund, which works with over 700 companies, set their goals higher: 'increasing awareness of products and companies that are compensating for their carbon footprint while helping to hasten a market transformation'.30 Indeed, tools such as the Carbon Fund's 'Carbon Footprint Protocol' associated with its CarbonFree™ product certification programme, as well as the CCB standards, draw on guidelines and standards that govern the compliance market such as rules for the CDM, since essentially they are wrestling with the same issues of proving additionality and using valid baselines.31

These private standards always bring with them issues of effectiveness and sanctions, accountability and legitimacy. Managing some of these legitimacy issues may be a role for the International Emissions Trading Association. There is also, however, the Offset Quality Initiative, a coalition of six leading non-profit organisations -the Climate Trust, Pew Center on Global Climate Change, California Climate Action Registry, Environmental Resources Trust, Greenhouse Gas Management Institute and the Climate Group founded in November 2007 to provide leadership on GHG offset policy and best practices.

Investors moving into this sector such as Merrill Lynch, Credit Suisse and J. P. Morgan want to see not just a healthy return on their investments, but evidence that offset products are seen as market leaders, credible in the eyes of those that buy them. On launching its own carbon offset service, Merrill Lynch's managing director and global head of carbon emissions Abyd Karmail said: 'The market must continue to grow on a foundation of environmental integrity. Demand in the rapidly growing voluntary carbon offsets market is shifting towards emission reductions that provide stakeholders with an independent guarantee of environmental sustainability and credibility.'32

29 World Resources Institute (2007). See

30, 'CArbonFreeTM Product Certification...' p. 3.

31, 'CArbonFreeTM Product Certification ...'.

32 'Merrill Lynch enters the Carbon Offset business' ClimateBiz, 23 April 2008. See, accessed 8 July 2008.

In some cases leading financial institutions even run VCS registries which are meant to issue, hold, trade and retire VCUs (Voluntary Carbon Units). Players such as the Bank of New York Mellon (USA) and Caisse des Dépôts (France) provide the offset market with what they describe as 'a clean chain of custody and custodial services'. The VCS registries need high levels of financial standing to provide long-term certainty in the market. For Mark Kenber of the Climate Group, the benefits of the registry are obvious: 'a cast iron environmental and financial guarantee for all VCS buyers from the investment banker in Manhattan to the occasional flyer in London'. 33 For Serge Bernou, head of carbon finance at Caisse des Dépôts, the move 'puts carbon markets on a level footing with other financial services'.34 Without doubt, then, carbon has been incorporated into the world of financial products and services. It has become a currency that people want to buy.

Buyers of credits also interpret interest by major financial players as an endorsement of their status as companies. The press release announcing J. P. Morgan's acquisition of Climate Care suggests the goal is to 'join forces in an acquisition to invest in quality, large-scale carbon emission reduction projects and to advance the development of a liquid financial market that trades in carbon reduction credits'.35 Tellingly, from J. P. Morgan's side the acquisition 'represents a new milestone in J. P. Morgan's ongoing investment in its commodities business'. Carbon offsets are a commodity much like any other it seems. What Climate Care will get in return from working with a leading global financial services firm with assets of $1.6 trillion and operations in more than 50 countries is access to truly global markets through J. P. Morgan, and the prospect of working 'with hundreds of major partners around the world to facilitate the roll-out of low-carbon technologies at the scale and pace required to make a genuine difference to our environment ... originating projects that will materially increase Climate Care's capacity to reduce carbon emissions'.36

But rapid market expansion in the future may also be dependent on addressing a broader range of issues discussed in the next chapter. If

33 Voluntary Carbon Standard, 'The Voluntary Carbon Standard association today reveals the approval of four VCS registries', press release, 2 July 2008. See http://

34 Voluntary Carbon Standard, 'New VCS Registry System to boost carbon market integrity and growth', press release, 17 March 2009. See http://www.v-c-s. org/170309newreg.html.

35 'JPMorgan to acquire ClimateCare', joint press release, 26 March 2008.

36 'JPMorgan to acquire ClimateCare', joint press release, 26 March 2008.

not, governments may get involved in regulating markets which companies continually claim they do not understand.37 For companies, the drivers are both voluntarism and regulation, or as Blythe Masters, head of Commodities at J. P. Morgan puts it: 'Clients ... seeking to reduce their emissions both due to regulations and out of social responsibility.' There is a lack of transparency and access to information about project methodologies, designs and carbon accounting procedures, however. Taken together with worries about baselines, additionality and third-party verification, this may fuel demands for minimal standards of reporting that allow for comparison across projects and sectors. If not provided by participants in the market, therefore, these standards may be required by government. Some in the offset industry suggest, nevertheless, that while there is no one registry and no standard definition of credits, the markets are more regulated than the allegations of 'cowboy capitalism' we will discuss in Chapter 8 allow for.

conclusion: what role for the voluntary carbon markets?

The two types of carbon economy, voluntary and compliance, will continue to co-exist and shape one another. The voluntary market lives in the shadow of the compliance market, while at the same time playing off its limitations. The initiative by the UK government for a code of conduct emerged because of worries about the voluntary sector's ability to self-regulate. The government's decision also reflected their concern that the voluntary market was a distraction from the existing CDM system whose creation and maintenance required enormous political efforts as part of the Kyoto negotiations. Actors in the voluntary market, therefore, have to show they are adding value in some way. For the President of EcoSecurities, the slow pace and excessive bureaucracy of the compliance market means valuable time is lost in the battle to tackle climate change. This is where the voluntary market comes in: meeting the demand for immediate action, filling a gap in the market, doing the things that Kyoto can't do.38 Which areas voluntary markets cover will be directly affected by negotiations about what is in and what is out of the CDM. The new battlegrounds

37 H. Lovell, 'Conceptualizing climate governance beyond the international regime ...'.

.38 H. Lovell, 'Conceptualizing climate governance beyond the international regime ...'.

include avoided deforestation (REDD) and carbon capture and storage. If the former is to be included in the CDM in the successor to the Kyoto Protocol, this could have an enormous impact on offset markets, which have traditionally served that niche.

The director of Climate Care Mike Mason talks about voluntary markets 'topping up' the compliance markets. Perhaps this is a useful way to understand their role: complementary to compliance markets rather than competing with them or acting as a substitute.39 At the end of the day, in terms of facilitating the transition to a system of climate capitalism, voluntary markets inevitably only have a small role to play. They serve as a stop-gap, plugging holes and maybe engaging and enrolling actors that would otherwise not be interested. Interestingly, though, this might include bringing on board governments that chose to stay out of Kyoto. Firms that see the potential in carbon markets in countries that until recently were outside the Kyoto regime, such as the USA and Australia, have provided a big market for offsets. Offset firms speak confidently of the ability to 'engineer a shift in political stance' of some key players that had been opposed to action, once they see the money to be made.40

Mike Mason is almost evangelical about the value of offsets. His claim, one he made forcefully at a conference at Oxford University in a debate with one of us, to an audience that included many climate activists, was a strong one: only offsets can deliver the scale of emissions reductions required in a short-term time-frame. In other words we cannot afford to do without them. Brushing aside concerns about the integrity of offset projects or the way in which their wholesale purchase by firms like British Airways allow them to increase flights and still claim to be carbon neutral, he can play hard ball with his critics, challenging them to find a solution that can achieve similar cuts in emissions as rapidly as the projects he funds. Perhaps the reasons people are interested in offsets are unimportant given the urgency of taking action. As Climate Care's annual report for 2004 states: 'the climate crisis is so urgent that we should not worry about the motivation of our clients'.41

39 H. Lovell, 'Conceptualizing climate governance beyond the international regime ...'.

40 Conversation with Johannes Ehberling, EcoSecurities, Oxford, 28 February 2008.

41 Quoted in K. Smith, The Carbon Neutral Myth: Offset Indulgences for your Climate Sins (Amsterdam: Carbon Trade Watch, 2007), p. 40.

But as well as generating short-term action and creating ways to involve otherwise recalcitrant actors, voluntary markets might be an important testing ground for experiments in carbon projects. They have the flexibility to invent and test out new sorts of projects which may then become suitable for inclusion in regulated markets like the CDM. The freedom which comes from being outside direct government scrutiny can lead to problems in claims about the environmental integrity of the projects (as we discuss in the next chapter), but it can also mean freedom to try out new things which may end up working well.

A simpler justification for their existence is that they are merely meeting a huge demand that exists for emissions reductions projects and carbon credits outside of the Kyoto regime. As the World Bank puts it: 'brokers, consultants, carbon procurement funds, hedge fund managers and other buyers scoured the globe for opportunities to buy credits associated with projects that reduce emissions in developing countries'.42 In narrow financial terms, the interest they have solicited from some of the world's largest financial services companies suggest they have brought carbon trading to the city.

More broadly, however, we can see in the flourishing of the voluntary carbon markets the fundamental forces of neoliberalism at work that we suggested in Chapter 2 are driving the development of climate capitalism. These markets embody the sorts of entrepreneurial flair and bottom-up innovation that will survive and flourish if they meet a need and will wither away and disappear if not. They clearly reflect the assumption that markets can work wonders in moving capitalism in innovative directions. They reveal again the dominance of finance in responses to climate change - they come about very much through the entrepreneurialism of companies like Climate Care or Cantor CO2e and the big financial players (J. P. Morgan and Cantor Fitzgerald) that back them. They have an interesting relationship with global inequalities. On the one hand offset projects are often marketed in terms of investing in (clean) development in the South, spreading wealth benefits while reducing emissions. But they also only make sense as projects because it is much cheaper to reduce emissions in the South than the North, precisely because income differences are so sharp. Perhaps more than any other aspect of the emergent climate capitalism, they are organised through highly fluid networks. They are

42 K. Capoor and P. Ambrosi, State and Trends of the Carbon Market 2006 (Washington DC: World Bank, 2006), p. i.

heavily reliant on the networking skills of key firms and intermediaries to bring together the disparate actors (project developers, investors, verifiers, etc.) to make the market 'work'. Finally, they are also, as we will see in detail in the next chapter, heavily contested. There are many who think that voluntary markets can play no role in a serious response to climate change - and the criticisms of these markets are precisely about their neoliberal character.

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