The Voluntary Carbon Market (VCM) in the United States

Periodically we will be publishing short research briefs on a particular sector that has recently caught our interest. We're calling them #AlamoBites, since they are bite-sized articles filled with facts. In today's #AlamoBites, we examine the increasing supply of voluntary carbon offsets in the United States, touching on the specific institutional, political, and cultural components that make the Voluntary Carbon Market (VCM) unique.

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Overview

The Carbon offsetting market in the United States is a rapidly expanding and increasingly robust market that relies on a distinct institutional, political, and cultural reality. Discussed below are the political landscape, business landscape, types of regulation, and consumer values related to the Voluntary Carbon Market (VCM).

Political Landscape

The US primarily has a voluntary carbon offsetting market and the participants include, but are not limited to, providers of offsets, developers of quality assurance mechanisms, third party verifiers, and consumers who purchase offsets.

In addition to a voluntary market, the US currently has regional cap and trade policies in effect on both coasts. The Regional Greenhouse Gas Initiative (RGGI- pronounced Reggie) was the first mandatory cap and trade program in the US. The program was created in 2005 encompassing northeastern states and is currently growing in its reach (1). The Western Climate Initiative (WCI) was created in 2007 and is made up of western states and 4 Canadian provinces. Though WCI has gone through many membership changes over the past years due to the highly politically polarized nature of climate policy in the US and the two-party system, recently, many western states have expressed interest in (re)joining the program and the WCI will likely grow to be much larger in the coming years (2).

The WCI program, in tandem with the California Global Warming Solutions Act of 2006, has been a driving factor in reaching climate goals in California and the state has been fundamental to its continuation (3). These programs collect funds from the allowances and place them in a ‘climate policy’ fund. In most cases, carbon-offsetting can only make up a small portion of an entity’s compliance obligation (4). For example, California’s Cap and Trade Program will only allow offsets to make up a maximum of 8 percent of each entity’s compliance obligation through 2020. This shrinks to 4 percent from 2021-2025 and 6 percent from 2026 to 2030 (5).

Business Landscape

The US carbon offsetting market is primarily voluntary and the supply of voluntary offsets has steadily increased over the past decade. Although it is common for carbon offsetting projects to be in the developing world, the US itself hosts nearly 23% of the total number of projects (6). The market consists of a few strong competitors with lots of US experience and tons of tiny boutique firms who work mainly in their own localities. As shown in Figure 1, from 2008 to 2017, annual offset issuances increased from 8.8 million metric tons of carbon dioxide emissions to 62.7 million metric tons (7). As of 2016, the voluntary offset market was classified as a buyers market, with almost as many offsets unsold as sold (8). Compared to global annual carbon emissions the amounts remain small, less than a quarter of 1%, but that share is growing quickly (9).

Figure 1: Historic Voluntary Carbon Offset Issuances and Retirements (10)

A 2017 buyer survey found entities purchased voluntary offsets in the US for multiple reasons (percentages represent share of purchases by value): 44 percent to demonstrate climate leadership, 34 percent to achieve personal greenhouse gas targets, 13 percent in pursuit of a climate-driven mission, 5 percent to engage customers/clients to offset emissions associated with their purchases, and 4 percent to achieve sustainable supply chain development (11). Pre-compliance and anticipation of regulation is a secondary reason for many companies, however, some are taking action now to acquire offsets in advance at what are expected to be lower prices in the case of future regulation.

The state of the market in terms of carbon offsetting projects is displayed below in Figures 2 and 3.

Figure 2: 2019 Findings (12)

Figure 3: Transacted Volume by Project Type, 2016 (13)

National Regulation

From a Government Accountability Office (GAO) report dated August 2008, over 600 organizations work in developing, marketing, or selling offsets in the US and this number is rapidly growing (14). From the federal government, there is very limited oversight, no single government body oversees the market. The Federal Trade Commission (FTC) and Environmental Protection Agency (EPA) have undertaken some consumer protection and technical assistance efforts. Additionally, some federal agencies are part of the market as providers and consumers, for example the Forest Service works with nonprofit partners to ask for donations to support forestry projects (15).

Common evaluative factors for carbon offsetting projects are as listed (16):

Additionality: Does buying this specific offset lead to a reduction of greenhouse gas emissions that would not have happened otherwise?
Permanence: The GHGs cannot return to the air after they’ve been offset
Leakage: Offsetting cannot only relocate emissions
Verified by third party: traceability is very important

Consumer Value Analysis

As of a Pew Research Poll in 2020, 62% of Americans classify climate change as a global threat in comparison to 73% of Europeans (17). In the US, roughly a quarter (23%) believe climate change is a minor threat, while 16% say it is no threat at all (18). Overall, only about half of Americans (49%) say human activity contributes a great deal to climate change while 20% believe human activity plays not too much or no role at all in climate change (19). In the US there are major divisions in opinion of climate change across social identities such as age, race, political affiliation, gender, and geographical location. A young liberal living in a western coastal state is the demographic most likely to believe that climate change is a massive problem and want to take voluntary action (20).

Conclusions

Composed of various types of participants including providers of offsets, developers of quality assurance mechanisms, third party verifiers, and consumers who purchase offsets, the Voluntary Carbon Market in the US has steadily grown over the past decade. Nearly one fourth of the total number of carbon offsetting projects are hosted in the US with the most common reason for purchasing being to demonstrate climate leadership. While growth in the market has led to an increase in developing, marketing, and selling offsets, national regulations and oversight remain limited. Even so, there is consensus on factors best suited to evaluate carbon offsetting projects. Lastly, the majority of Americans agree that climate change is a global threat, though opinions vary across demographics and social identities.