Offsets • The Net Zero Target: The Voluntary Carbon Market Enters a New Dimension

Born from the 1997 Kyoto Protocol, the voluntary carbon market has taken up much space in debates of recent years on the transition pathways to “carbon neutrality”. Now in full swing, the purchase and sale of carbon credits according to an emissions offsetting logic is being driven by a wave of non-state commitments towards “Net Zero”. More than an arithmetic tool to balance the carbon footprint accounting of organisations, the trading of carbon credits is emerging as a channel for mobilising private capital at the service of mitigation projects. The market is progressively becoming regulated, the instruments are multiplying, and the volumes traded are increasing; but in the absence of universal regulation and standardisation of practices, financialization of the market raises concerns about the integrity of projects and the claims of “carbon neutrality” made by companies.

• 2021 was a banner year for the voluntary carbon market, driven by the upsurge of corporate commitments to achieve “net zero emissions”. By exceeding a billion dollars for the first time and multiplying fourfold year-on-year between 2020 and 2021, the value of credits traded globally shows the growing interest of companies in this instrument within the framework of their transition plans.
• Credits certifying nature-based solution projects (afforestation, reforestation, conservation, etc.) are enjoying a thriving success and occupy the leading position in the market. The co-benefits for biodiversity and the socio-economic development of local communities are also highly sought after.
• Emission removal credits allowing the capture and additional sequestration of CO2 in the long term, remain very underdeveloped.

While it is dynamic, the size of the voluntary carbon market nonetheless remains modest and still far from carbon pricing levels considered compatible with a trajectory that limits global warming to 2 or 1.5 °C. While it allows channelling of private financial resources towards projects beneficial to the mitigation of greenhouse gas emissions, the possibility offered to companies and other organisations to claim “carbon neutrality” in the absence of universal standards incites controversy. Therefore, alongside this development, new governance frameworks and standards are being created, that structure and regulate the use of carbon credits and strategies based on carbon neutrality. Though the adoption of Article 6 of the Paris Agreement may not result in a change on the fundamentals of the market for the time being, it will allow better integration of the voluntary market with that of the signatory States.