emissions compared to what would happen
under normal business conduct.
- Regulatory additionality test: assesses whether
the project is legally binding for its
implementation by the author or another
relevant party.
- Verification of financial (or investment)
additionality: it is estimated whether the project
will be carried out without the income received
from carbon credits.
- Technological additionality: assesses whether
the project leads to accelerated technology
adoption, which would have occurred
otherwise.
- Barrier testing: assesses whether any non-
financial barriers may hinder the
implementation of the project, for example,
technological barriers or barriers in the capital
market.
- Testing of common practice: assesses whether
project activities are common practice in the
region and/or industry.
2. Accurate measurement: The scheme accurately
accounts for emissions and/or sinks occurring within
the project boundaries as a result of project
implementation, ensuring that there is no over-
crediting (Lee and Kim, 2018; Miroshnichenko,
2021).
3. Leakage: The scheme should ensure that there
will be no increase in emissions or reduction in
uptakes beyond the project boundary as a result of the
project (Gillenwater et al., 2017).
4. Consistency: Carbon accumulated and credited
under the scheme will not be fully or partially
released as a result of future events. The most
common way to ensure consistency is:
- issuing only time-limited loans for
sequestration projects when the loans expire
after a certain period and they must be replaced
upon expiration.
- the requirement to preserve carbon stocks for a
fixed period of permanence, for example, 100
years (FAO, 2010).
3.2.2 Purchase and Sale of Offset Loans
In the carbon market, sellers and buyers exchange
both permits and offset loans. In voluntary carbon
markets, sellers of offset loans voluntarily reduce
emissions or increase carbon sequestration, usually
due to a financial incentive associated with the
possibility of selling loans. Buyers who are not
legally obligated to reduce emissions or increase
carbon sequestration mainly purchase offset loans to
reduce their environmental footprint, demonstrate
corporate social responsibility and improve their
public image. There are two main types of
transactions in voluntary carbon markets:
- Forward sales: This type of sales corresponds
to the sale of ex-ante emissions reductions (not
released) before they occur or ex-post
emissions reductions (released) that must be
delivered after their release and the conclusion
of the contract. Forward sales require
agreement on a number of conditions,
including the quantity to be bought/sold, the
prices to be paid, payment terms, delivery of
assets, which registry will be used, cancellation
policy, etc.
- Spot sales: In this case, the seller delivers
carbon compensation credits to the buyer's
register, and then the buyer pays for the
delivered carbon credits. Alternatively, the
buyer can pay first and then the seller can make
the delivery. Spot sales require the conclusion
of contracts that address a number of issues,
including the number of quotas to be
bought/sold, the prices at which they will be
paid, payment terms, termination terms,
included and excluded taxes, etc.
3.2.3 Pricing of Carbon Offsetting Credits
In a functioning market with strict and transparent
standards, the prices of carbon offset credits are set
by supply and demand. The most successful will be
those offset service providers whose projects are
effective and can generate offsets at below-market
prices. The carbon offset unit prices must offset the
costs incurred at various stages of the project before
the emission reduction can be sold as compensation.
The main cost factors are:
- Costs associated with the project cycle: These
costs include investments in technology,
financing of investment capital, costs of
technical operation of the project, maintenance
and administration, etc.
- Costs associated with the delivery process:
These costs include project management,
quality control, legal and other costs.
3.3 Voluntary Carbon Offset
Standards
Carbon offset credits sold on the voluntary carbon
market can be certified according to a number of
certification standards, the main of which are listed
below. These standards ensure that carbon offsetting
projects and the resulting credits are trustworthy.