There are differences and implications of either voluntary carbon markets or mandatory carbon markets. Basically, carbon markets are applicable in the form of mandatory or voluntary. The voluntary market has an unregulated scheme.
Well-known international standards, traded in the voluntary markets, are present to observe for verifying the carbon credits' validity and quality. Compliance schemes turn out to be aimed currently at the highest emitters in terms of energy intensive. They cover several companies that produce metals like steel and iron, power generators, and oil refineries, as well as factories of pulp, paper, cement, and so forth.
In short, the voluntary market supplies the purpose of businesses like governmental offices, blue-chip corporations, NGOs, and even individuals who are eager to be liable for their carbon footprint for the faster low-carbon future transition.
Knowing the Voluntary vs Mandatory Carbon Markets
On the whole, the carbon markets work in changing CO2 emissions into a commodity by giving a price to it. There are two categories of those emissions which are known as carbon credits and carbon offsets. Either compliance or voluntary market can buy and sell them both on carbon markets.
The definition of mandatory carbon markets is the marketplace where any company issues certain carbon credit numbers on a yearly basis. Those companies should fulfill them as they are non-voluntary. Regulators should set a limitation on carbon emissions, in the case of cap-and-trade programs that decreases as years go by.
After that, participants have chances in trading allowances to generate profit to meet the requirements of compliance carbon offset program. Those participants include both emitters as well as financial intermediaries. Among the most active program include the United Nations Clean Development Mechanism that was generated from the Kyoto Protocol.
Meanwhile, voluntary carbon markets are self-governed instead of enforced or mandated in a legal way. Any individual or organization, that produces carbon offsets, can offer them to others, whether they are individuals or companies with the aim of decreasing the emitted CO2e amount. Such market flexibility allows any individuals or small companies to sell their offset for obtaining profit from such activities.
Implications of Voluntary or Mandatory Carbon Markets
Both the mandatory and voluntary carbon markets complement each other. They make things easier for many buyers who need to gain carbon offsets for their daily operational activities. At this moment, most pricing schemes of mandatory carbon are only applicable to the manufacturing and power sector.
Some other companies don’t get such pricing schemes. Those companies include farmers, wholesalers, retailers, and contractors. They might pay higher in reducing emissions by using the latest technology.
That’s exactly how offsetting schemes will contribute to obtaining the objective of the voluntary climate of a company. The main objective is to neutralize residual emissions though it is still very hard to do. This is why, any company can contribute to voluntary carbon schemes when there is no option of mandatory carbon schemes.
Summary
All in all, there are basic differences between mandatory and voluntary carbon markets, though both of them are very crucial in producing a low-carbon economy. Mandatory carbon markets work on a mandatory basis. Meanwhile, voluntary carbon markets work on a voluntary basis. For governments, mandatory carbon markets become very crucial to obtain the targets for carbon reduction.