top of page
  • Writer's pictureCourtney Burton

Carbon Credits: Navigating Compliance and Voluntary Markets

By Courtney Burton


In a world divided climate change policy, the concept of carbon credits remains a relevant economic tool. Depending on one’s politics, carbon credits may represent a climate change solution, but for others, carbon credits represent a strategic business response to a market and regulatory environment that increasingly values 'green' credentials. In this context, understanding the distinction between compliance and voluntary carbon credits becomes crucial.


Compliance carbon credits emerge from government-imposed regulations rather than an acknowledgment of climate change per se. These are born out of laws and regulations that set limits on the amount of greenhouse gases a company can emit. If these limits are exceeded, the company must acquire carbon credits to compensate for its overage. The Alberta Technology Innovation and Emissions Reduction (TIER) system in Alberta, Canada, is an archetype of such a compliance market. In this system, high-emission facilities are legally bound to adhere to emission targets set by the government. Those who exceed these targets can either reduce their emissions or purchase credits from those who have emitted less than their allotted amount.


On the other hand, voluntary carbon credits are not driven by legal mandates but by market dynamics and corporate strategies. Companies purchase these credits on their own initiative, often to enhance their brand image, appeal to a certain segment of consumers, or pre-emptively adhere to what they anticipate might become future regulations. These credits are tied to various projects like renewable energy or reforestation. The decision to participate in these markets is typically strategic, reflecting a company's desire to be seen as environmentally conscious or to hedge against future regulatory changes.


The distinction between these two types of credits lies primarily in their motivation. Compliance credits are a response to legal requirements, a mechanism for companies to continue operating under new environmental regulations. Voluntary credits, in contrast, are a business strategy, a way for companies to garner goodwill and potentially gain a competitive edge.


In conclusion, whether one is convinced carbon credits are an effective climate change policy initiative or not, carbon credits in both compliance and voluntary markets represent a significant element in the contemporary business landscape. They reflect a complex interplay between environmental regulation, corporate strategy, and market forces. Understanding this dynamic is crucial for businesses navigating an increasingly 'green' economic environment, where carbon credits, regardless of their origin, play a pivotal role.


To learn more about Carbon Credits, check out our podcast

Definitely Not Legal Advice Season 1 Episode 8 - Carbon Credits:



Comments


bottom of page