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LONDON (Reuters) - The market for companies choosing to offset their carbon footprints is not achieving meaningful emissions cuts yet, market players said at a carbon industry conference in London on Tuesday.
Voluntary carbon offsets allow individuals and organizations to elect to compensate for their own greenhouse gas emissions by funding projects that reduce greenhouse gas emissions, often in developing countries.
The market operates outside mandatory emissions reductions schemes such as under the Kyoto Protocol or the European Union's Emissions Trading Scheme. It evolved largely in the United States as a market-based mechanism to address climate change and in Europe as a byproduct of implementing the Kyoto pact. Only 34.69 million tonnes of carbon offset credits have been retired on the voluntary market so far, according to estimates by carbon asset management company First Climate.
Carbon credits totaling 123 million tonnes, valued at $705 million, were transacted in the global voluntary carbon market in 2008, according to New Energy Finance and Ecosystem Marketplace estimates.
"It shows the market hasn't made a big difference. These are tiny amounts of reductions although I still see potential in some products and services," First Climate executive board member Sascha Lafeld told delegates at the GreenPower conference.
More than 50 percent of those offset credits were originally designed for the United Nation's Clean Development Mechanism (CDM), but were delayed by bottlenecks in the pipeline process.
The CDM was formed under the Kyoto Protocol on climate change and enables companies from developed countries to invest in clean energy projects in emerging nations, and in return receive credits which can be used toward greenhouse gas emissions targets or sold for profit.
"It distorts the market as those credits are a by-product from CDM projects -- not meant for the voluntary market in their original form," Lafeld said.
Voluntary offset credits can also change hands four to five times before they are retired.
Credits do not offset greenhouse gas emissions until they are retired, or taken permanently off the market, by a supplier or purchaser.
"Participants try to keep their assets alive for as long as possible but the objective of the market is to retire credits," Lafeld added.
The voluntary market has made progress in raising awareness among companies and governments about reducing harmful greenhouse gas emissions as well as building consumer support, market participants said.
There is still room for the market to grow as the United States edges toward climate legislation which would allow a total of up to 2 billion tonnes of offsets a year to be used in a cap-and-trade scheme from domestic and international sources.
"The voluntary market is too small and not making a big enough impact. We need to be making a gigatonne of reductions," said Jonathan Shopley, co-chair of industry representative The International Carbon Reduction and Offset Alliance.
There is real urgency to achieve meaningful global emissions cuts as pressure mounts on world leaders to agree on a climate change pact in Copenhagen in December to succeed the Kyoto Protocol which expires in 2012.
"We need to stay focused on reducing emissions wherever they are and do it as quickly as we can," said Mark Chadwick, chief executive of carbon management firm Carbon Clear.
Reporting by Nina Chestney; Editing by Keiron Henderson