The Impact of Protocol Type on Offset Pricing in the Voluntary Carbon Market

July 15, 2021 by Callum Winstock



The Voluntary Carbon Market (VCM) is predicted to undergo a precipitous growth in the coming decade fuelled by a surge in demand for offsets in the race to net-zero; over 1500 corporations have already set carbon neutrality targets, and this figure is rising exponentially (Streck, 2021; Financial Times, 2020). However, one of the issues that has been a feature of the VCM is the lack of transparency in the quality of the offsets sold and the prices that these products garner. The lack of pricing data in the market has led to inadequate information for market players, and so results in an inefficient functionality of the market and an exploitation of the buyers’ lack of knowledge. Additionally, this lack of transparency means that finding investment for projects is challenging as potential revenues and returns on investment cannot be accurately forecast.

The VCM is often described as highly convoluted in which the same offset can generate vastly different prices between different retailers. If the VCM is to take a more central role in climate mitigation strategy, trust needs to be built in the market. This is where CaliforniaCarbon.info’s price window comes in to redress this balance and provide some insights into this opaque and complex marketplace.

CC.info have partnered with some established and forward-thinking intermediaries with the aim of providing this visibility to the market. The CC.info price window is built on real-world transaction data and allows users to investigate offset prices with the ability to focus on the specific credits that most interest them. Our interactive platform allows users to customise views to compare and contrast historical and current prices for different offsets. A more mature and visible market through our platform may help to counter the pervasive Wild West atmosphere experienced and may allow participants to scrutinise and question the offset market in a more informed way.   

This is one in a series of articles investigating how different offset attributes affect the price and trading performance of different offset credits. The previous issue examined the effect of economies of scale and the volume discount when carrying out offset transactions in bulk. This article will now focus on the effect of different protocol types and how the variety of available projects can generate vastly different prices.

Results and Interpretation

Figure 1: Volume-weighted average price of offset credits by protocol type. ODS = destruction of ozone-depleting substances; LULUC = land-use and land-use change; REDD+ = forestry.

The following figure shows the relative volume-weighted prices that different protocol types achieve in the Voluntary Carbon Market, with the error bars highlighting the standard error in the data. Volume-weightings take the raw prices and adjust them to what would be expected if they were carried out at a median volume of 2,000 units so to minimise the volume bias.  

Nature-based solutions are generally priced more highly with REDD+ and LULUC projects achieving volume-weighted prices of over $7 / tCO2e. Opposingly, waste management, renewable energy (RE), ODS and Fuels & Transport are placed at the other end of the spectrum with prices approaching $3 / tCO2e. Meanwhile, biogas, energy efficiency and other GHGs sit in the middle.

It is generally understood that buyers predominantly favour credits from projects that are relatable, and so afforestation projects, for example, which are conceptually very simple appeal to individuals and corporations that are trying to demonstrate environmentally beneficial practices. Meanwhile, projects such as landfill methane projects are more conceptually abstract to most consumers with a result that there is less demand for these offset types.

Beyond the impact of credit demand, the cost of project development is a likely contributor to price. REDD+ and LULUC by their nature are far more time- and labour-intensive and will therefore require more maintenance and development in order to effect emissions reductions. This is demonstrated by the $6 weighted premium for REDD+ wholesale trades compared with renewable energy wholesale transactions. Indeed, as these projects have a far longer time lag in creating offset credits combined with a greater uncertainty in the project’s success, these additional risks may also be reflected in the price (House of Commons, 2007). The complexity in measuring the baseline emissions scenarios and monitoring the total sequestered carbon also adds additional transaction costs that may inhibit a project’s development (Cacho et al., 2013). For REDD+ projects consistent, strong pricing signals are particularly important in order to provide income certainty for local communities that might otherwise succumb to the economic motives that catalyse deforestation (Palmer, 2020). Historically, the relatively low cost of credits in the market provided little financial incentive for developers but a change is likely on the horizon.  

There is a wide range of project types encompassed under the REDD+ umbrella, and so the exact nature of prices within will be affected by this too. Unfortunately, there is insufficient data to provide insight into this but other analyses have shown that afforestation and improved forest management projects elicit the greatest prices while avoided deforestation merit far lower costs (Maguire et al., 2021). 

In contrast, renewable energy, waste management and ODS projects are far less time- and risk-intensive with there being a limited threat of project failure, and so they are able to be priced far more cheaply. However, the validity of RE offsets particularly is becoming increasingly questionable. Historically, offset investments have been used to reduce the financial burden of developing expensive renewable energy projects that would otherwise not be cost-effective when competing with conventional energy sources. However, as the cost of implementing renewable energy projects continues to fall, the legitimacy of using offsets to finance this development is becoming less significant (Maguire et al., 2021; Shimbar and Ebrahimi, 2020). Indeed, the additionality of some renewable schemes are dubious. In 2020, the French energy giant, Total, declared its first carbon neutral liquefied natural gas shipment that was in part offset by a Chinese wind farm project that had been in operation since 2011 (Reed, 2020; Maslin, 2021). It is unlikely that this offset finance triggered any legitimate emissions reductions, and so redoubles many critics’ distrust of this protocol type.

As a result of these concerns, both ACR and CAR registries have ceased the development of RE projects. In addition, Gold Standard and VCS have imposed restrictions that these projects may only be carried out in the 46 Least Developed Countries where RE is still assumed to be economically unviable (Turner et al., 2021). The growing stringency in the validation of these credits may help to ensure that the RE credits that are produced show meaningful additionality. Indeed, the additional political risk in developing RE projects in these countries will mean that the cost of these credits will likely far exceed their current low benchmark (Turner et al., 2021). This potential restriction in supply for low cost RE credits may also be contributing to the increasing pricing signals we are seeing as there is a growing understanding that these credits will become increasingly scarce as the market evolves.  


From this analysis we have determined the premium that buyers might be willing to pay for nature-based solutions. This is in part owing to the relatability of credits, the elevated costs of project development and the high risk of project failure. Indeed, the presence of low-cost renewable energy credits currently witnessed looks likely to change in the coming years as regulatory developments alter the protocol’s future growth. What is clear is that cheaper, technology-based credits have a finite lifetime and that a combination of rising demand, increased scrutiny in the verification of credits and regulatory developments are sending clear pricing signals of price increases in the near future. Market players should bear this in mind when considering future participation in the VCM. With these transitions in the market, we may be on the cusp of a growing convergence in the price for offset credits. Whether this hails a growing standardisation for the prices of protocol types in the market’s current form or that commoditisation via a market exchange will take centre stage remains to be seen.


Cacho, O.J. et al. (2013) Transaction costs of carbon offset projects: A comparative study. Ecological Economics, 88, 232–243.

Financial Times (2020) The merits of a global carbon offset market. Available at: https://www.ft.com/content/8afbd14a-eddd-4a61-9a23-393e68cb8fb5 [Accessed: 7 May 2021].

House of Commons (2007) The Voluntary Offset Market. Available at: https://publications.parliament.uk/pa/cm200607/cmselect/cmenvaud/331/331.pdf [Accessed: 7 May 2021].

Maguire, P. et al. (2021) State of Forest Carbon Finance 2021.

Maslin, M. (2021) Reforming the Global Voluntary Market for Carbon Offsets. Available at: https://www.ucl.ac.uk/global-governance/news/2021/jan/reforming-global-voluntary-market-carbon-offsets [Accessed: 4 May 2021].

Palmer, A. (2020) Strong growth predicted for voluntary carbon market – Environmental Finance. Available at: https://www.environmental-finance.com/content/analysis/strong-growth-predicted-for-voluntary-carbon-market.html [Accessed: 8 July 2021].

Reed, E. (2020) Total delivers carbon offset LNG to CNOOC – News for the Energy Sector. Energy Voice. Available at: https://www.energyvoice.com/oilandgas/asia/lng/272824/total-cnooc-lng-carbon/ [Accessed: 5 July 2021].

Shimbar, A. & Ebrahimi, S.B. (2020) Political risk and valuation of renewable energy investments in developing countries. Renewable Energy, 145, 1325–1333.

Streck, C. (2021) How voluntary carbon markets can drive climate ambition. Journal of Energy & Natural Resources Law, 0(0), 1–8. Routledge.

Turner, G. et al. (2021) Future Demand, Supply and Prices for Voluntary Carbon Credits – Keeping the Balance. 51.

Analyst Contact:

Callum Winstock


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