Mandatory and Voluntary Carbon Markets

Although much more developed in Europe, Carbon markets are developing in the United States. Whereas these markets are mandatory in Europe and there is a homogeneous set of carbon accounting and trading protocols, the U.S. markets are fragmented, regional centric and voluntary, except for the northeastern U.S.

Compliance markets (those mandated by law, also called regulated markets) exist now in Europe and in the northeastern region of the United States. 2007 compliance market volume doubled that of 2006. The vast majority of this is traded in Europe. Additional U.S. regional compliance markets are planned, being designed, and are a near certainty—given existing legislation, e.g., that in California. Voluntary markets are those in which buyers purchase environmental benefits by choice rather than legal requirement.

It is considered very likely, but not certain, that federal legislation will establish a U.S. mandatory carbon compliance market. This is the stated policy of the current administration. It is also likely, but not certain that a federal Renewable Portfolio Standard (RPS) will be enacted in the U.S. Such a law would require a certain amount of U.S. electric generation from renewable sources, but would not establish a carbon market. This potential legislation is now increasingly likely, given recent statements by the administration to double alternative energy in three years.

The impacts and implications of these emerging events and a detailed description of voluntary and mandatory markets are explained in the ScottMadden document titled "Mandatory and Voluntary Carbon Markets."