creases from one period to the next, that is basically what cap-and-trade means. However the EU linked the EU ETS to the Flexible Mechanisms of the Kyoto Protocol by allowing a certain number of emissions reductions created under CDM or JI projects to be used and traded at the EU ETS.

The voluntary market

Beyond the CDM and JI, there is the growing unofficial offset industry, a range of both charitable and profit-making groups which broker offsets. Since emission reduction projects under the Kyoto protocol carry a huge responsibility, the criteria they have to comply with in order to be eligible are very strict and for some type of projects not at all achievable. This is one reason why projects and related emission reductions are also created outside the compliance market which can be purchased on the “voluntary market”. But they cannot be used for Emissions Trading under the Kyoto Protocol. However, there is a legally-binding voluntary market where parties can set self-imposed, legally binding greenhouse gas emissions reductions targets the Chicago Climate Exchange (CCX).

(The CCX was launched in 2003 and is a voluntary, legally binding integrated trading system to reduce emissions of the six major greenhouse gases with offset projects worldwide. CCX employs independent verification, and has been trading greenhouse gas emission allowances since 2003. The companies joining the exchange commit to reducing their aggregate emissions by 6 per cent by 2010. To date the exchange has more than 350 members.)

Registries, which are usually set up for a specific system, have been developed for the voluntary market by governments, non-profits, and the private sector, but often not yet applied. Some of the registries are tied to certain standards whereas others function independently. Most voluntary standard registries are still in the planning stage and not yet operational.

The voluntary market is still new but appears to be growing fast. The Climate Group estimates that it doubled to trade in about 20 Megatonnes (Mt) of CO2 equivalent in 2006, a figure it expects to grow to around 400 Mt CO2 equivalent by 2010. In the voluntary market there are no overarching or compulsory standards or methodologies for creating credits. There are, however, a number of voluntary standards emerging in an attempt to bring greater robustness and harmonization to the voluntary offset marketplace.

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