Carbon economics: Standard set for voluntary offsets

You would think a market projected to grow to $4 billion over the next five years would have a rock-solid way to measure its currency. Now, it has a least one standard.

The Voluntary Carbon Standard was released Monday, providing a much sought-after framework to account for voluntary carbon offsets.

Voluntary carbon offsets are a way for individuals or businesses to spend money to reduce their greenhouse gas emissions. Pollution reduction credits of various flavors are already being figured into the business plans of many green tech start-ups.

If a corporation wishes to be carbon neutral, for example, it will give money to an organization that will invest in projects that reduce pollution. For example, offset money can be used to fund a renewable energy project in developing country. The carbon dioxide emissions that are eliminated by that project can be sold and traded on carbon markets.

These offset programs are already widely used. However, some of the projects have come under scrutiny and received some skepticism.

In one case, BusinessWeek magazine investigated an offset project that did indeed reduce pollution. But it was unclear whether that project qualified as something new, or just part of what that company would have done regardless of any offset investment.

The Voluntary Carbon Standard was developed by the Climate Group, the International Emissions Trading Association (IETA), and the World Business Council for Sustainable Development (WBCSD).

The groups said that its verification process will result in greater transparency and rigor in certifying voluntary carbon offset projects.

In addition to voluntary markets for trading carbon reductions, there is a regulated market created in Europe after the establishment of the Kyoto Protocol.

In the United States, there are a few regional carbon emission reduction programs based on trading pollution allowances now being formed. Federal regulations are also being proposed

To read more about "carbon capitalism" in regulated markets, check out next month's cover story at Bloomberg Magazine. California governor and carbon market advocate Arnold Schwarzenegger graces the cover.