The carbon offset market grew out of the binding carbon-reduction commitments made by the Kyoto Protocol signatory nations. (1) The treaty requires signatories to establish emissions objectives for the five-year period starting in 2008 and ending in 2012. (2) The thirty-seven industrialized nations that are signatories to the treaty are required to reduce greenhouse gases (GHGs) by an average of 5% below 1990 levels starting in 2008. (3) The Kyoto Protocol provides signatory nations flexibility in meeting GHG reduction targets. The carbon offset market is one of the tools that the signatory nations developed in order to meet those treaty obligations. (4) The carbon offset market works by matching a reduction in GHG emissions in one location with continuing emissions elsewhere. (5)
The carbon market in the United States is almost entirely unregulated, in contrast to the European carbon market, which is highly regulated as part of a mandatory GHG reduction program designed to achieve compliance with the Kyoto Protocol. (6) The United States has neither ratified the Kyoto Protocol nor made a binding commitment to reduce GHG emissions, so the use of carbon offsets in the United States is voluntary. (7) As a result, consumers and businesses in the United States generally buy carbon offsets to prepare for future regulation, receive good publicity, and help the environment. One survey indicated that companies that are not seen as environmentally friendly will lose their market share, giving companies a strong incentive to purchase carbon offsets so they can claim carbon neutrality. (8) Companies also participate in the voluntary market in preparation for a future mandatory GHG emissions-reduction program, hoping that the offsets purchased today will be usable under a future emissions cap. (9) Additionally, many companies are working to reduce or offset their emissions on a voluntary basis because they hope that their actions will help mold future regulation. (10) The total value of the U.S. voluntary carbon market in 2008 was estimated to be $705 million with 123.4 million tons of carbon dioxide (C[O.sub.2]) equivalent sold. (11) It is estimated that the size of the market will continue to increase in the coming years. (12)
This Comment will examine...