A landmark agreement at the 2015 UN Climate Summit (COP21) in Paris, to reduce global greenhouse gas (GHG) emissions, included new support for developing countries in tackling climate change.
2015 also saw European leaders agree to the Market Stability Reserve (MSR), a reform that would remove surplus emission allowances (EUAs) from the EU Emissions Trading System (ETS) – the world largest compliance market for carbon – in a move designed to bring supply and demand back into balance after the 2008 financial crisis.
However, despite these changes, prices in the voluntary carbon market have stubbornly continued their decline.
Figures from Ecosystem Marketplace's 2015 State of the Voluntary Carbon Market report show that average annual prices, have fallen to an all-time low of $3.30 per tonne of carbon dioxide (CO2) from $3.80 in 2014.
"There has been a decline in demand for voluntary offsets," says Martijn Wilder a partner at Baker & McKenzie, which was voted Best Law Firm in the survey for the seventh year. "This has resulted in less capital flowing to support the development of voluntary offset projects, such that only the very high quality projects are prospering".
The average price of voluntary carbon credits is now less than half of the peak of $7.30 reached in 2008.
However, despite prices falling for an eighth year in row, most market participants remain optimistic, citing possible demand side drivers.
The cause of the persistently low prices, according to Toby Janson Smith, chief innovation officer at VCS, which was voted Best Voluntary Standard, was historical oversupply.
Contrary to Wilder, however, he believes buyers have been eating into this oversupply, and argues that, for the second year running, buyers of offsets have redeemed more verified carbon reductions than were issued.
"We saw more retirements in the last couple of years, which is great sign," says Janson Smith. "There is still a fair bit of supply but it's getting used up, which is a good thing, especially when you take market signals like the Paris Agreement, into account."
A record 39 million tonnes of verified carbon offsets were redeemed in 2015, according to Ecosystem Marketplace.
Demand for offsets seems to have turned a corner just as world leaders reached an agreement on new targets for global emissions reductions.
As part of the COP21 agreement, rich countries can choose to offset their carbon emissions by purchasing carbon offsets from poorer countries.
"The reintroduction of a market-based mechanism implied in the Paris Agreement cannot be overestimated," says Thomas Schröder, director of marketing and communications at South Pole Group.
He argues that the previous market mechanism – the Clean Development Mechanism, which was introduced by the UN to help poor countries produce carbon offsets that could be used in large emissions trading schemes – was struggling to keep up with the economic development of India and China.
The market also saw a 10% increase in overall volume, and this trend has continued into 2016, according to some market participants, who see it is a sign that the market is picking up, despite the low prices.
Another key development for the market was the inclusion of climate change into the UN's Sustainable Development Goals (SDG).
The SDGs are designed to replace the eight Millennium Development Goals, which were launched in 2001, and served as a focus for international aid and development finance from UN member countries.
Revised up to 17, the new goals not only take account of the effect that climate change has on achieving the original goals, but explicitly list tackling climate change as one of the goals.
This means climate change projects that generate strong social 'co-benefits' – so called because they are considered additional to carbon emissions reductions – may attract more financing as countries and companies use them to show their commitment to the SDGs.
"When the UN SDGs came out in September last year, we began matching the project 'co-benefits' according to these goals to help illustrate their impact in terms of economy, ecology and society in general," says South Pole's Schröder. "These projects have the potential to obtain a premium price in the market."
Countries are not the only drivers of demand in voluntary carbon markets, there has been a renewed interest from corporates, according to Natural Capital Partners. Indeed, the increase in volumes last year was partly driven by corporations taking proactive steps to reduce emissions ahead of expected regulations, according to the Ecosystem Marketplace report.
"The COP21 agreement crowned a very good year for carbon credits," says Simon Brown, managing director at Natural Capital Partners. "We saw renewed interest in carbon offsetting, with companies making commitments to reduce carbon emissions through science-based targets and becoming carbon neutral."
Companies have not only increased their commitments, they have also 'deepened' them, according to EcoAct, which was voted Best Advisory Service, Best Project Developer - Energy Efficiency and Best Project Developer Overall.
"Traditionally, buyers of offsets were companies and individuals trying to offset their travel, but that market expanded to include some buyers who began to show more concrete commitments to offsetting their Scope One and Two emissions," says William Theisen, a director at EcoAct.
2015 also saw Gold Standard, another voluntary carbon credit standard setter, launch a consultation on how to include the revised SDGs into the third iteration of its standards.
The inclusion of environmental issues in the UN SDGs also helped to support the argument that projects should do more to quantify the non-carbon benefits they provide.
The price premium for quantifying these 'co-benefits' is increasingly being seen by developers as a valuable new source of capital for projects.
This is leading to a larger gap between the part of the market that is interested only in purchasing carbon offsets and the part that is interested in the full spectrum of benefits, according to Edward Hanrahan, a director at ClimateCare, which was voted Best Project Developer - Public Health.
"All of the different development outcomes from these projects need to be considered as separate at the very beginning and planned into the project," says Hanrahan.
"It is increasingly becoming recognised that the valuable outcomes from these projects are not just environmental, but also the health and development aspects."
The renewed commitments by world leaders at COP21 to use environmental levers to help developing countries achieve sustainable growth are seen a boon for voluntary carbon markets.
The number of commitments made by countries increased ahead of the Paris Agreement, as countries sought to rise to the occasion, according to Markit, which was voted Best Registry Provider.
"We saw renewed vigour in the market in the lead up to COP with the expectations of an agreement being reached," says Kathy Benini, managing director at Markit. "Peru built their REDD+ registry, Mexico also launched theirs. Columbia also created a domestic voluntary market in 2015. All of this was done in advance of COP."
Cookstove projects were popular with corporate offset buyers in 2015, and credits issued for these projects saw a big uptick.
According to the Gold Standards' first quarterly report on offset supply, published earlier this year, credits from cookstove projects saw 2.2 million retirements in 2015, compared to 1.5 million issued.
Another key area where developers remain optimistic are forestry projects.
Projects such as this year's winner of Best Offsetting Project -- The International Small Group Tree Planting Initiative (TIST) – have proved a big hit with companies. These types of project recognise the fact that around 17% of global GHG emissions are from forestry-related emissions. Projects associated with reducing deforestation and forest degradation (REDD+), in particular, are seen as prime candidates for inclusion in mandatory offset markets. (See box)