US Carbon Markets

There are two types of carbon markets functioning in the United States today. They are known as a “Compliance Markets” and “Voluntary Markets”.

Compliance markets are created and regulated by national or sub-national governments. In a compliance market, companies emitting greenhouse gases are required by law to meet strict compliance obligations that are designed to reduce GHG emissions. A carbon credit is an instrument that can be used by these companies to meet their compliance obligations. However only carbon credits generated under the compliance market’s regulatory framework (i.e. resulting from an approved activity) can be used in a compliance market. The credit is in effect the proof that emissions have been reduced elsewhere by a qualifying activity or technology, emission reductions that can thereafter be used to ‘offset’ emissions produced by the regulated company. Carbon credits are attractive because they usually lower a company’s compliance costs. The most active compliance market for carbon credits in the USA today is California’s compliance market.

Voluntary carbon markets function outside of the compliance market. They enable businesses, governments, NGOs, and individuals to voluntarily offset their emissions by purchasing offsets that were created from an approved activity or technology ratified by the relevant voluntary framework. Prominent voluntary carbon frameworks include the Verified Carbon Standard (VCS), The Climate Action Reserve (CAR) and, the American Carbon Registry (ACR). Carbon credits generated for voluntary markets cannot be used in a compliance market.

In general, the processes followed to generate a carbon credit are the same in both compliance markets and voluntary markets. Credits are created by implementing an emission reduction project that follows an approved methodology (or protocol) including the calculations involved in quantifying the emission reduction. Once emission reductions have been quantified by a project developer like Climate Smart Group they must be formally verified by an independent third party. The verified credits are then serialized and listed on an approved registry. At that point they can be sold to a third party.

Compared to the compliance market, trading volumes in the voluntary market are, in general, much smaller, because demand is created only by voluntary buyers to buy offsets. In a compliance market, demand is created by a regulatory instrument, and carbon credits typically lower a company’s regulatory compliance costs. Because there is lower demand and because voluntary carbon credits cannot be used in compliance markets, they generate less revenue than compliance-grade credits.

In return for higher demand and higher prices, compliance markets often demand a higher degree of rigour when carbon credits are generated. For any carbon credit project we (Climate Smart Group) must collect sufficient and appropriate data and supporting evidence to determine what the project’s emission reductions are and to demonstrate that:

  • the actions that reduced GHG emissions actually occurred
  • the data collected to calculate the emission reductions is correct
  • the emission reductions are eligible to be used in the relevant market

Protocols and methodologies for compliance market projects tend to involve collecting more supporting evidence and are usually more data-intensive. At Climate Smart Group we believe that both markets play a vital role in reducing Greenhouse Gas Emissions. We will generate and sell our clients’ carbon credits in the market that will give them the best return. Climate Smart Group’s (CSG) Nitrogen Management Credit Program (NMCP) offers growers financial incentives for reducing nitrous oxide (N2O) emissions from synthetic and organic N-fertilizers applied to their fields. Growers can increase the efficiency of N-based fertilizer use without affecting yield.  Increased efficiency means lower input costs and reduced emissions of nitrous oxide (N2O), a gas which contributes to climate change. CSG converts reductions in N2O emissions into emission reduction credits which are sold into the US carbon market, providing a new revenue stream to growers. This voluntary and market-based approach pays thoughtful, sustainable growers for the environmental benefits of their activities—all without government intervention.