Voluntary Carbon Offsetting Market: Comparing USA and China
AlliedOffsets is a brand new database of carbon offset projects created by AlliedCrowds.
The carbon offsetting market suffers from poor transparency and a lack of information; AlliedOffsets is designed to help remedy these problems. In this piece, we are going to look at some country specific data about the voluntary and CDM offsetting markets. With current data on the market split by registry, it is virtually impossible to get a clear picture of what is going on in each country. The analysis and discussion here will help demonstrate some of the benefits to be unlocked from our new data.
Let’s begin by looking at the largest players in the offsetting market.
The above three graphs detail the largest players in both the Clean Development Mechanism (CDM) and the Voluntary market consisting of the Gold Standard, VCS, Climate Action Reserve, and American Carbon Registry. What stands out is the USA’s absence in the CDM. This isn’t a surprise: the Kyoto Protocol set up the CDM so that only developing nations could create and sell credits. Over time therefore, two major voluntary registries have emerged in America: Climate Action Reserve (CAR) and the American Carbon Registry (ACR) — this also explains why these two feature so few unique countries in their registries (see below).
The emergence of two American registries has fed through into the distribution of project types within the USA. Below we can see the frequency of different project types in two biggest players: China and USA. In China, as in other emerging markets, renewable energy features as the largest project type of offset created over the last 15 years. In the USA, it is a much smaller portion:
If we use our data to dig into CAR and ACR, we can see that they feature almost no renewable projects.
Clearly the dynamics of CAR and ACR play a large role in how the offsetting industry works in the USA. For renewable energy project developers this is a valuable insight. (On the VCS registry, renewable energy projects are the most common; however, it has fewer projects than either of CAR and ACR, and only 36 renewable energy projects total in the USA.)
As we discuss in our report on the market, the process of selling credits is very tricky. To succeed, project developers need to be able to directly sell their credits in the order of millions, typically to specific companies. Appreciating the market sentiment in different countries will enable project developers to better target markets where their credits will sell. If project developers are able to sell their own credits, this cuts out both huge financial and operational inefficiencies that arise from having to sell through 3rd party offset vendors. Additionally, our data can also help project developers locate where there may be potential gaps in the market. This holds two benefits: the project developers themselves have an opportunity to create more credits, and the kinds of projects within nations ought to become more diverse delivering a much stronger impact for the environment.
Our data can also provide a more detailed look at the evolution of the offsetting industry within countries over time. Let’s examine the same two countries once more.
Again, the USA’s market dynamics is quite different from the other economies. China (as well as other countries not covered in this article) show very low activity in recent years. In contrast, the USA has only recently started to produce a significant number of projects. Underlying registry dynamics once more help explain these differences. We can see in the graph below that after 2013, the number of new projects being registered with the CDM crashed:
During the last financial crisis, global demand for offsets crashed but supply didn’t correct. As we can see, the number of new projects continued to increase through the crisis. Without supply correcting for the lower level of demand, prices had to shift. The resulting crash has crippled the CDM ever since. By contrast the USA, with its younger and more innovative registries and project developers who were not affected by the crash in CDM prices, is seeing a steady output of new projects.
This was a brief introduction to the kind of analysis that can be carried out with AlliedOffsets’ database. If you are interested to learn more or if you have any questions, feel free to reach out to carbon@alliedcrowds.com.
