Voluntary CO2 Compensation: Caught Between Credibility and Feasibility

Since the adoption of the Paris Agreement in December 2015, the number of large companies that have committed to achieving net zero emissions has increased significantly. The vast majority of companies that have committed to neutrality appear to rely on the voluntary carbon market to offset their remaining emissions. This market enables companies or individuals to offset their own emissions by purchasing voluntary carbon credits generated by climate protection measures elsewhere. If the commitments made by companies translate into actual demand for voluntary carbon credits, the voluntary carbon market could grow to a new magnitude. In practice, however, the voluntary carbon market faces new challenges, particularly on the supply side. In the past, carbon offsets were mostly generated in sectors of the economy that were not covered by any reduction target. With the global reach of the Paris Agreement, this share is now dwindling and the future of the voluntary carbon market is uncertain.

A new JIKO Policy Paper "Caught in between" examines the future of the voluntary carbon market by bringing together the perspectives of the demand and supply sides. It presents new figures on the potential demand for voluntary offsets and contrasts these with the ongoing attempts on the supply side to adapt to the changing circumstances of the Paris Agreement. The authors Nicolas Kreibich and Lukas Hermwille, both Research Unit Global Climate Governance in the Energie, Transport and Climate Policy Division at the Wuppertal Institute, conclude that the voluntary carbon market as a whole has not yet found a way to credibly and legitimately adapt to the new legal architecture of the Paris Agreement, it seems to be caught between credibility and feasibility. Nicolas Kreibich, co-author of the study explains: "There is a growing discrepancy between the expectations of companies that want to use voluntary offsetting as part of their climate protection strategies and the uncertainty on the demand side of being able to provide the high-quality products required for this purpose. This is a cause for concern and could lead to a weakening of environmental integrity".
The authors conclude that both political support and a cohesive approach by the players in the voluntary carbon market are needed to establish feasible and credible approaches for voluntary carbon offsetting.

The JIKO Policy Paper 03/2020 "Caught in between" is available free of charge under the link below.