Currently, carbon credits are sold over the counter, in a variety of ways. For example, a forest company can sell carbon credits to an individual, or it can enter into a contract with another company. These contracts are usually long-term. Ideally, a carbon credit contract should be drafted in a way that allows for amendments, as well as for termination.

However, there is little regulation in the carbon market, and the market is highly fragmented. The voluntary carbon market has the potential to make progress toward a low-carbon future easier. The market would also create incentives for sellers to increase supplies of carbon credits. However, the market is also highly susceptible to fraud and errors. A voluntary market for carbon credits could improve the functioning of the market and help to ensure that the market is fair.

The Paris Rulebook sets substantive and procedural requirements for the creation and sale of carbon credits. It also sets up a governance body that can monitor the conduct of market participants and ensure that the market is functioning in a fair way. It also sets up guidelines to help prevent fraud. These guidelines include anti-money-laundering and know-your-customer policies. The Paris Rulebook also sets procedural requirements to protect the integrity of credits.

The voluntary carbon credit exchange has the potential to provide an effective way for buyers to signal their desire for emissions reductions. This would increase the supply of carbon credits and increase the incentive for project developers to develop carbon projects. However, the voluntary market is highly fragmented and lacks liquidity. There are a number of emerging carbon credit exchanges. This is a good thing, because it could provide a mechanism to consolidate trading activities around a few types of credits.

The voluntary market for carbon credits could be more effective if there were a strong consensus on the legitimacy of offsets. This would ensure that credits are used in the most appropriate manner. There should also be a strong and independent third party organization to develop a common taxonomy for carbon credits. This taxonomy could help to define the attributes that contribute to the price of credits. This would help end buyers to determine the validity of projects and protect them from accusations of greenwashing.

In addition, a digital process could be used to facilitate the creation and verification of projects. This would accelerate cash flow for project developers and lower issuance costs. It could also improve the credibility of corporate offsets. A digital process could also help to trace credits. This would also help to minimize payment terms.

To ensure that the voluntary carbon market is effective, it is essential to establish a governance body to oversee the market and to help ensure that participants are eligible for participation. There should also be a clear definition of roles, responsibilities, compensation, and risks. The Paris Rulebook has been a good start, but further guidance is needed.

A voluntary carbon market would promote greater carbon offsetting and help to strengthen the market’s integrity. It would also encourage sellers to increase supplies of carbon credits and help to encourage buyers to signal their demand for emissions reductions. A robust voluntary market would also make it easier to locate reputable sources of credits and help to accelerate progress toward a low-carbon future.