Voluntary offsetting: credits and allowances

To date, the supply of units for the voluntary carbon market has been almost exclusively in the form of credits generated by climate protection projects elsewhere. This report analyses the merits and challenges of another possible source of supply for GHG compensation: allowances from emissions trading systems (ETSs). Yet some ETSs have market stability instruments (MSIs), such as the Market Stability Reserve in the EU ETS, which may provide for the invalidation of EU ETS allowances in response to market developments. An MSI can thus affect the additionality (and consequently the environmental outcome) of such voluntary offsetting. The pros and cons of both sources are aimed at all stakeholders in the voluntary market – from providers to users of voluntary offsetting.