Carbon Market Types — Frequently Asked Questions
This FAQ explains the key distinctions buyers and sellers encounter when trading carbon credits on NCRB: insetting vs offsetting, and voluntary vs compliance markets. Understanding these distinctions helps you choose the right credits for your reporting obligations and sustainability claims.
Carbon Insetting vs Carbon Offsetting
What is carbon offsetting?
Carbon offsetting means a company purchases credits from a project outside its own value chain to compensate for emissions it cannot yet eliminate internally.
Example: A logistics company buys credits from a reforestation project in Brazil to neutralise the emissions from its truck fleet. The reforestation is unrelated to the company's business — it simply "offsets" an equivalent volume of emissions elsewhere.
Offsetting is the most widely used approach and is supported by standards such as Verra VCS, Gold Standard, and the American Carbon Registry.
On NCRB: Listings tagged with an Offsetting badge represent credits from projects outside the buyer's supply chain.
What is carbon insetting?
Carbon insetting means a company invests in emission reductions or removals within its own value chain — among its suppliers, farmers, or raw material sources — and earns credits for those reductions.
Example: A food company funds regenerative agriculture practices among its smallholder suppliers. The resulting soil carbon credits are attributed to that company as insetting credits, reflecting real action in the supply chain that produced the food being sold.
Insetting delivers a "double dividend": it both reduces Scope 3 emissions at source and generates a carbon credit that can be used for reporting. Major frameworks recognising insetting include the Voluntary Carbon Markets Integrity Initiative (VCMI) and the Science Based Targets initiative (SBTi) for Scope 3 action.
On NCRB: Listings tagged with an Insetting badge represent credits embedded in a specific supply chain. Buyers should confirm relevance to their own Scope 3 emissions before purchasing.
What is the difference between insetting and offsetting?
| | Insetting | Offsetting | |---|:---| | Location of action | Inside the buyer's value chain | Outside the buyer's value chain | | Primary goal | Reduce Scope 3 emissions at source | Compensate for unavoidable residual emissions | | Relationship to buyer | Direct — buyer's suppliers or raw materials | Indirect — unrelated third-party project | | Best suited for | Supply chain decarbonisation, Scope 3 strategy | Near-term neutralisation, net-zero residuals | | Recognised by SBTi | Yes — counts toward Scope 3 reduction targets | Yes — counts toward "Beyond Value Chain Mitigation" (BVCM) | | Recognised by VCMI | Yes — Silver, Gold, Platinum claims | Yes — Silver, Gold, Platinum claims | | Typical buyer | Corporates with agricultural or forestry supply chains | Any company with any emission type |
Which should I buy — insetting or offsetting credits?
It depends on your emissions profile and reporting framework:
- If you are reducing Scope 3 emissions and your supplier base produces the relevant credits, insetting directly supports your SBTi Scope 3 pathway.
- If you need to neutralise residual emissions after deep decarbonisation (the "last 10–20%" that cannot be eliminated), offsetting with high-quality removals (forestry, biochar, DACCS) is the appropriate tool.
- If you are meeting a compliance obligation (EU ETS, CORSIA), the specific eligible credits are defined by regulation — see the Compliance Markets section below.
Most credible net-zero strategies combine both: insetting to reduce Scope 3 at source, and high-quality offsets to neutralise genuinely unavoidable residuals.
Voluntary Carbon Markets (VCM)
What is a Voluntary Carbon Market?
A Voluntary Carbon Market (VCM) is a private market where companies, governments, and individuals voluntarily purchase carbon credits to meet self-imposed sustainability or net-zero targets — not because a law requires them to.
Participation is driven by:
- Corporate net-zero commitments (SBTi, VCMI, CDP disclosures)
- ESG reporting obligations (CSRD, TCFD)
- Consumer-facing sustainability claims
- Reputational and investor pressure
The VCM operates largely outside government regulation and is governed by independent standards bodies.
Who sets the rules in the VCM?
Several bodies set quality standards for voluntary carbon credits:
| Organisation | Role |
|---|---|
| Verra (VCS) | Largest voluntary standard; issues Verified Carbon Units (VCUs) |
| Gold Standard (GS4GG) | Adds SDG co-benefit requirements alongside carbon reductions |
| American Carbon Registry (ACR) | US-focused; accepts projects globally |
| Climate Action Reserve (CAR) | North American projects; strong forestry and refrigerant standards |
| ICVCM (Integrity Council) | Issues Core Carbon Principles (CCP) — a meta-standard assessing whether credits from any programme meet integrity benchmarks |
| VCMI | Sets rules for corporate claims made using voluntary credits (Silver, Gold, Platinum) |
NCRB supports all four major registries above. Credits that meet ICVCM CCP criteria and are used in accordance with VCMI claims guidance represent the highest tier of voluntary market integrity.
What types of projects generate voluntary carbon credits?
| Project Type | Mechanism |
|---|---|
| Avoided deforestation (REDD+) | Prevents forest clearing; avoidance |
| Reforestation / afforestation | Grows new forests; removal |
| Improved forest management (IFM) | Increases carbon stored in existing forests; avoidance + removal |
| Regenerative agriculture / soil carbon | Sequesters CO₂ in farmland soils; removal |
| Methane capture (landfill, coal mines) | Captures potent GHGs before release; avoidance |
| Cookstoves / clean energy (developing markets) | Replaces fossil fuel combustion; avoidance |
| Blue carbon (mangroves, seagrass, wetlands) | Sequesters carbon in coastal ecosystems; removal |
| Biochar | Converts biomass into stable carbon; removal |
What is "additionality" and why does it matter?
Additionality means the emission reduction would not have happened without the carbon credit revenue. A non-additional project (one that would have proceeded anyway) does not represent a real climate benefit from the credit purchase.
Additionality is one of the most scrutinised aspects of credit quality. NCRB's quality scoring weights additionality at 20% of the total score, and Article 6.4 credits receive a higher additionality score because the UN-supervised mechanism has stricter additionality requirements than most voluntary standards.
What are "corresponding adjustments" and why do they matter in the VCM?
When a country issues a carbon credit and a foreign buyer uses it toward their own climate claim, both the buyer and the host country could potentially count the same tonne of CO₂. To prevent this double-counting, the Paris Agreement (Article 6.2) introduced Corresponding Adjustments (CA).
When a CA is applied:
- The host country deducts the credit from its national greenhouse gas inventory (NDC)
- The buyer adds the credit to their own account
Credits with a CA applied carry stronger integrity for corporate claims because the reduction has been formally recognised and transferred under international law. Credits without a CA may still be valid for voluntary claims but cannot be used for certain Paris-aligned purposes.
On NCRB listings, a green CA badge indicates a corresponding adjustment has been applied. This field is set during certificate registration and stored on-chain.
Compliance Carbon Markets
What is a Compliance Carbon Market?
A Compliance Carbon Market is a government-mandated system that requires regulated entities (power plants, manufacturers, airlines, etc.) to hold sufficient carbon allowances or credits to cover their verified emissions. Participation is not optional — entities that fail to comply face significant financial penalties.
The two main mechanisms are:
- Cap-and-Trade (Emissions Trading Scheme / ETS): A government sets a declining cap on total emissions and issues allowances up to that cap. Companies can trade allowances among themselves. The cap creates scarcity; trading sets the price.
- Carbon Tax: A fixed price per tonne of CO₂ is set by government. Companies pay the tax or invest in reductions. There is no trading.
Which compliance markets exist globally?
| Market | Jurisdiction | Mechanism | Price Range (2025) |
|---|---|---|---|
| EU ETS (European Union ETS) | EU + EEA | Cap-and-Trade | €50–€80 / tCO₂e |
| UK ETS | United Kingdom | Cap-and-Trade | £30–£50 / tCO₂e |
| California Cap-and-Trade (CCA) | California, USA | Cap-and-Trade | $25–$45 / tCO₂e |
| RGGI (Regional Greenhouse Gas Initiative) | 12 US states | Cap-and-Trade | $12–$20 / tCO₂e |
| China National ETS | China | Cap-and-Trade | ¥50–¥90 / tCO₂e |
| Korea ETS (KETS) | South Korea | Cap-and-Trade | ₩8,000–₩15,000 / tCO₂e |
| New Zealand ETS (NZ ETS) | New Zealand | Cap-and-Trade | NZD 50–80 / tCO₂e |
| CORSIA | Aviation (international) | Crediting offset | Varies by eligible credit type |
What is CORSIA?
CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) is the ICAO-administered compliance scheme for international aviation emissions. Airlines that exceed their baseline emissions must purchase eligible carbon credits ("CORSIA-eligible units") to offset the surplus.
CORSIA is a compliance offset mechanism — airlines are required to participate, but they meet their obligation by purchasing third-party carbon credits (from approved VCM programmes or Article 6.4 credits), rather than holding government-issued allowances.
On NCRB, credits with creditMechanism = "corsia" meet CORSIA eligibility criteria. They are displayed with a CORSIA mechanism badge on listing cards.
What is the CDM and how does it relate to Article 6.4?
The Clean Development Mechanism (CDM) was the carbon crediting mechanism under the Kyoto Protocol (1997–2020). It generated Certified Emission Reductions (CERs) from projects in developing countries. Although the Kyoto Protocol has expired, many CDM projects had not yet fully issued their credits.
Under the Paris Agreement's Article 6, parties agreed to allow certain CDM credits to transition into the new Article 6.4 mechanism, subject to eligibility criteria set by the UN's Article 6.4 Supervisory Body. Transitioned credits receive the cdm_transition mechanism designation.
On NCRB, creditMechanism = "cdm_transition" identifies credits from legacy CDM projects that have been formally authorised for use under the Article 6.4 framework.
Can I use voluntary credits for compliance obligations?
Generally no — compliance markets specify exactly which units are eligible. For example:
- EU ETS accepts only EU Allowances (EUAs) — voluntary VCS or Gold Standard credits are not eligible
- CORSIA accepts a defined list of approved VCM programmes (including Verra VCS with certain restrictions)
- California Cap-and-Trade allows a limited quantity of offset credits from ARB-approved protocols, which differs from the broader VCM
The exception is CORSIA, which is specifically designed as an offset mechanism using third-party credits.
On NCRB, the Credit Mechanism field and BBB — Compliance Grade quality band identify credits most relevant to compliance use. Buyers with specific compliance obligations should verify eligibility with their compliance team before purchasing.
How NCRB Displays These Distinctions
On every marketplace listing card, NCRB surfaces the relevant badges so buyers can filter at a glance:
| Badge | Meaning |
|---|---|
| Insetting (teal) | Project is embedded in a supply chain (Scope 3 relevant) |
| Offsetting (sky blue) | Project is outside the buyer's value chain |
| CA (green checkmark) | Corresponding adjustment applied — Paris-aligned |
| Art. 6.4 (blue) | UN-supervised Article 6.4 credit mechanism |
| CORSIA (blue) | CORSIA-eligible credit for aviation compliance |
| CDM→6.4 (blue) | Legacy CDM credit transitioned to Article 6.4 |
Quality band badges (AAA through BBB) indicate overall credit integrity and eligibility tier.
Further Reading
- Carbon Credits FAQ — tokenization, registries, quality scoring, Article 6 fields
- NCSC Stablecoin FAQ — the natural capital stablecoin backed by NCRB RWA tokens
- NCRB Marketplace — browse and filter listings by credit mechanism, corresponding adjustment, insetting/offsetting, and quality band