Voluntary markets function in a similar way to compliance markets with a few notable exceptions. First, as the name implies, the institutions participating in this market are doing so voluntarily. Secondly companies that offset their emissions in the voluntary market are not obliged by the state or other regulators to reduce / cancel their emissions.
Recently, you have read about commitments made by such giants as Microsoft, Amazon, L’Oreal, Nike and others to transition their operations to some form of carbon neutrality (i.e., emitting zero net GHGs) or carbon negativity (i.e., sequestering more net GHGs than they produce) in the near future.
They do it out of conscience, out of a respectful approach to the planet, to the environment, to the customers.
However, from the perspective of your realist correspondent, while public relations certainly does play some role in these companies’ strategic planning processes, the managers at these firms also realize that profits and stock prices are an outgrowth of a stable, wealthy population able to pay taxes for modern infrastructure projects as well as buy consumer products. This type of stable operating environment is placed into doubt when one considers the worst-case climate possibilities, so managers understand that it is in their own best interest to mitigate worst-case scenarios.
Another important role that voluntary markets serve is to offer credit purchasers what is known as “co-benefits”.
An untouched stand of trees generates one big benefit – the carbon sequestered in the living trees themselves. However, voluntary development projects may offer other social or environmental benefits in addition to lowering GHG emissions, such as poverty reduction, habitat preservation, and increases to local living standards.
These are all benefits that support U.N. Sustainable Development Goals, so a company able to tout participation in programs with co-benefits scores valuable PR wins for its shareholders.
Through projects developed under – but not only UN standards – organizations are able to invest in carbon credits generated by verified emission reductions from rural households’ reduced burning of wood for fuel.
Proceeds from the sale of those carbon credits are plowed into to the operations of a company that employs local people to build – e.g. stoves and filters and distributes these products to their rural neighbors, or reforest areas of land.
One co-benefit of such program is that the purchasers of the carbon offsets end up improving the social, economic, health conditions and economic situations of rural areas.
Everyone in this voluntary credit value chain is doing well by doing good. Further proof, if proof were needed, that the economic manifestation of the human species’ wonderful adaptability – capitalism – offers a path to increased well-being at the local and the global level.
Intelligent entrepreneurs, take note!
Author: Eric Kobayashi Solomon