Compliance vs. Voluntary carbon markets: Which one is right for your business?

Carbon markets play a crucial role in addressing carbon emissions and promoting sustainability efforts across the globe. These markets can be broadly categorized into compliance-based and voluntary carbon markets, each serving different purposes and catering to diverse business needs.

Compliance carbon markets

Compliance carbon markets are established and regulated by governments with the primary aim of achieving carbon reduction targets set by the authorities. Participation in these markets is mandatory for companies, governments, and organizations falling under the specified emission thresholds. Such entities are legally obligated to participate and meet specific carbon reduction targets as mandated by the government.

An example of a compliance carbon market is the European Union's Emissions Trading System (EU ETS). This system requires companies emitting significant amounts of carbon dioxide (CO2) to purchase a predetermined number of carbon credits annually. These credits can be acquired through various means, such as buying them from companies that have surpassed their reduction targets or investing in renewable energy projects that lead to a net decrease in carbon emissions.

Businesses that participate in compliance-driven initiatives usually:

• Operate in regions with government-mandated emission reduction targets,
• Are legally required to participate in compliance carbon markets to meet regulatory obligations.
• Seek opportunities to trade carbon credits within a regulated system.

Voluntary Carbon Markets

On the other hand, voluntary carbon markets operate independently from government regulation, and participation in these markets is entirely optional. Companies, governments, and organizations voluntarily choose to offset their carbon emissions through these markets either to fulfill their own sustainability goals or to demonstrate their commitment to reducing their carbon footprint.

Businesses that participate in voluntarily driven climate action usually:

• Want flexibility in choosing projects and initiatives that align with your sustainability values.
• Are not subject to mandatory participation in compliance carbon markets, or want to exceed regulatory requirements and demonstrate voluntary efforts to reduce its carbon footprint.

Read more about the key differences between compliance and voluntary carbon markets.

Which carbon market is right for your business?

Compliance and voluntary carbon markets both play essential roles in the global transition towards a low-carbon economy.

Compliance markets are instrumental in achieving government-set emission reduction targets, while voluntary markets provide businesses with the freedom to address their carbon emissions based on their own environmental objectives.

Carefully assess your business goals and regulatory context to determine which type of carbon market aligns best with your organization's sustainability strategy.

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