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U.S. voluntary carbon market does not reward complexity

Unlike the Kyoto markets, the U.S. voluntary markets prefer to stick to simple types of projects.

I had a lively discussion with Susan Wood, CEO of SCC Americas, at the Carbon Finance North America Conference last week. SCC Americas is the U.S. arm of Syndicatum Carbon Capital, one of the largest developers of Kyoto-based CDM carbon credit projects in the world. Susan herself has been doing emissions trading for more than a decade, after starting out as an environmental engineer.

The punchline in our chat was quite fascinating--the U.S. voluntary carbon market does not reward complexity in projects, Susan says. Basically, U.S. carbon credit developers are only doing a few limited types of projects, like methane destruction. Why? Because the buyers, who dictate the voluntary markets, tend to be scared off by anything complex that they do not understand, or anything that does not appear to be future proofed against coming U.S. regulations. This stands in stark contrast to the CDM market, where complexity is often the hallmark of the major developers since the methodology and standards process is trusted to a much greater degree by compliance buyers than the voluntary standards are.

One other way to look at this issue is that much of the innovation in new ways to abate carbon is coming from CDM under Kyoto, not the voluntary markets. A bit sad, and a challenge to the voluntary standards community to get its act in order. Possibly the rise of new standards like Voluntary Carbon Standard and Green-e Climate will help fix the crisis in complexity, but we have been saying that for a while. As Susan puts it, we need it to happen yesterday.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and start-ups in clean tech. He is also the founder of Carbonflow, a provider of software solutions for the carbon markets.