Watch: What is the Voluntary Carbon Market?

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The Voluntary Carbon Market, or VCM, is a market-based mechanism used to assist in reducing greenhouse gases in the atmosphere.

Unlike regulatory tools like carbon taxes or cap and trade systems, the VCM is voluntary in nature.

Organizations decide to take part in the VCM because shareholders, customers, or employees expect them to reduce their climate impact and the VCM is seen as one tool for doing so.

Organizations that are working to decarbonize their activities may decide to compensate for unavoidable emissions by financing projects that do the opposite of emitting. These are known as carbon projects, and they either avoid the release of carbon or remove it from the air.

Developers of carbon projects issue carbon credits. They can release as many credits as the tonnes of carbon avoided or removed by their project.

One carbon credit, once retired, can offset one ton of greenhouse gases emitted by a company or organization.

There are many types of carbon project, but all of them need to sell carbon credits to finance their operations.

Some projects harness the ability of trees, the ocean or the soil to store carbon; others use technology to remove carbon from the air.

Before issuing credits, these activities need to be certified by a standard.

Standards are separate organizations, often non-profit, that verify that carbon projects are really removing or avoiding carbon emissions, and respect the core principles of carbon finance.

The job of linking supply and demand is done by intermediaries like traders, brokers or exchanges.

How do market participants agree on the right price of credits? We’ll explore this in the next videos