Climate change is the major challenge of the 21st century. In order to mitigate global warming, atmospheric carbon dioxide has to be reduced dramatically. Via instruments designed by the soon expiring Kyoto Protocol and different other measures, the international community aims to realise this carbon reduction. Experts speak of carbon markets. Where companies, organisations and individuals are seeking to neutralise their carbon footprints, financial actors are making enormous profits. But whom does this market really serve? Economy, environment or both? This study intends to increase the understanding of such markets and to analyse strengths and weaknesses for defining possible quality actions. Firstly, an overview of presently existing and developing carbon markets, their differentiation and locations will provide basic comprehension of the current status of carbon trading. Questions about the role of the US or developing nations like China and India will be answered. Who is forerunner in this market? Afterwards, this work will concentrate on non-binding or so called voluntary carbon transactions. The reader will learn about the supply structure of non-compliance carbon trading and market drivers. Major project types will be discussed as well. Furthermore, the question will be raised if offsetting or voluntary carbon trading has an effect on global warming, if it improves the situation - or not. After analysing market structures and participants’ motivations, the author will have a closer look on criticism and markets weaknesses, before introducing quality mechanisms. What instruments will open the carbon market for mainstream participants? Which structural changes are necessary to enhance quality in this nascent market? An outlook will be given on how the voluntary carbon market most probably develops. Finally, the reader will be acquainted with voluntary carbon markets and may decide weather or not they are an option to counteract climate change, the major challenge of the 21st century.

Text Sample: Chapter 2.4.1, Individuals – Underrepresented Target Group: Voluntary offsetting provides individual consumers with the possibility to account for their personal carbon footprint. Compliance markets do not allow for such transactions due to structural restraints. For reducing or neutralising individual emissions, consumers may: - either purchase offsets directly from retailers - or make environmentally conscious purchase decisions, as for instance with the ClimateSmart™ program from PG&E. Retailers generally provide a so called carbon calculator on their websites. Therewith, consumers can determine the amount of carbon produced by their activities and purchase the corresponding amount of offsets. Mostly, this is done for air travel, but increasingly for domestic activities, too. Second option is the participation in offset programs, increasingly offered by businesses, or the choice of offset products (as for instance financial services, see section 2.3.5 on Companies – Jumping on the Carbon Neutral Train). Though, a discrepancy between consumers’ commitments and actions has been observed by recent research. The GfK Rauper Green Gauge study concerning US consumer’s behaviour for instance found that 82% of Americans claim to be seriously concerned about environmental issues, whereas only 28% made corresponding purchases during the last two months (Makover 3). With view on the country’s objective to become ‘carbon neutral’, Norway’s environmentalist Frederic Hauge sharply points on the mayor problem of most developed countries: ‘We are a nice little country of petroholics and that has made us lazy’, Frederic Hauge, head of Norway’s largest environmental monitoring organisation Bellona. Therefore, incentives have to be created in order to further motivate individuals to change their high-carbon habits. The UK government for instance considers the introduction of a personal carbon trading scheme. But how can this target group be stimulated via market mechanisms? Harris’ survey among retailers suggested that price and additional benefits are prevailing decision factors for consumers of this supplier group. Quality concerns seemed to be less important. Weakness of this study is that retailer’s customers are not solely individuals and the small size of the sample (26 answers). Nevertheless, one may deduce that for motivating individuals to become more active on the voluntary carbon market, businesses have to offer products with added environmental value at low prices. This can be achieved by means of already mentioned strategic partnerships. Thus, a greater choice of offset products or commodities with the option to offset will stimulate individuals to increasingly participate in the voluntary carbon market. Another quality enhancing tool is education and transparency to gain credibility. The better informed consumers are, the more likely they will decide for offset products. Business – Most Attractive Large-Scale Purchasers: Besides the above discussed possibility to sell carbon credits, businesses may also purchase offsets. Dell or the often cited HSBC bank are just a small selection of examples for voluntary offsetters. Three forms of participation exist: Firstly, entities aiming at neutralising emissions from corporate operations for corporate social responsibility reasons. The second group comprises businesses purchasing carbon credits for resale, either in regard of future regulations or for profit reasons, see previous section. Third possibility for corporations to act as purchasers is to neutralise product life cycle emissions for offering ‘carbon neutral’ commodities. As evaluated before, major motives are corporate social responsibility and image concerns. Additionally, the discovered wish for valuable offsets will drive the development of projects with high quality features and co benefits, depending on the entity’s purposes. Similarly to individuals, businesses are not yet ‘walking their talk’. A McKinsey survey found that 60% of global executives consider climate change as important issue. Almost the same amount (61%) even acknowledges that with the right management such issues may have ‘a positive effect on profits’. Though, solely 30% ‘frequently or always consider climate change in overall strategy’. The study also confirms observations that entities are influenced by factors such as ‘corporate reputation, media attention to climate change, and customer preferences’. Despite the perceptible discrepancy between words and actions, corporate offset buyers will lead the drive towards quality in unregulated carbon markets, in order to maintain credibility face to their customers. Events – Accounting for Carbon Footprints: Not only corporations account for their carbon footprints, event organisers also discover this tool for attracting media attention or mitigating negative environmental effects. The role of events in the carbon market, if there is any correspond to awareness raising and education. As examples hereof may be named the Life Earth concerts, the UNFCCC conference in Bali 2007, the Olympic Games in Beijing 2008 or the FIFA Soccer World Cup two years earlier in Germany which are claiming to be ‘carbon neutral’. Since event related offsetting intends to communicate and raise awareness, public and event participants need to understand projects easily. Therefore, carbon credits are chosen according to their public appeal. For instance forestation is a comprehensible and easily marketable action. Projects with additional benefits are also preferred for their communication possibilities. So, event organisers will rather support ‘charismatic’ offset projects. Public Institutions and Governments – Combining Efforts towards a Low-Carbon Society: What role do public actors play in an unregulated market? Since regulation potentially restricts the voluntary carbon market, governments are reluctant to act in this regard. However, in the UK research and dialogue is undertaken to design a profitable and market oriented framework, see Box 5 below for more information. As purchasers of carbon credits, governments only play a minor role with 0.4% of transactions effected in 2007. Nevertheless, announcements of towns, communes and even entire countries to become ‘carbon neutral’ do not cease. In February 2008 for instance, the United Nations Environment Programme announced the launch of a Climate Neutral Network. New Zealand, Iceland, Costa Rica and the world’s third largest oil exporter Norway joined this initiative to reduce emissions to zero with together four towns and five corporations.

• voluntary and regulated Carbon markets

• Carbon offset

• Emissionsrechtehandel

• Kyoto Protokoll

• Carbon trade

Born 1984 in Goerlitz, Germany, Kathleen Leonard studied Baltic Management at the University of Applied Sciences Stralsund. She accomplished part of her secondary education at Gdansk Technical University (Poland). At the age of 24 she graduated with a Bachelor of Business Administration from both universities. During her curriculum, Leonard worked in close collaboration with Guyra Paraguay, a nature conservation organisation, on an eco tourism project. Furthermore, she established a strategic paper on how to implement environmental management in an SME. Today, Kathleen Leonard lives in Strasbourg, France, and prepares for an extra-occupational master course.