Voluntary carbon markets (VCMs) offer an important market mechanism that allows firms to efficiently abate their emissions. By utilizing the VCM, firms can buy voluntary carbon credits (VCCs) from carbon projects that have a lower marginal cost of abatement, allowing firms to decarbonize more efficiently.

This efficiency may lead to firms decarbonizing their operations more quickly and further than they would otherwise do on a voluntary basis.

One of the main obstacles in delivering the lowest cost abatement through VCCs and liquid, transparent VCMs is the perceived risk of greenwashing and its associated reputational and regulatory risks.

This paper: (1) provides an overview of VCCs; (2) explains greenwashing; (3) describes the origin, causes and risks of nature- and technology-based VCC methodologies at both the credit and system level; (4) discusses the effects of greenwashing on primary and secondary carbon markets; (5) highlights market reforms to minimize the risk of greenwashing (both regulatory and industry-led efforts); and (6) provides recommendations.

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