OAKLAND, Calif. — Both the mandatory and voluntary carbon markets saw significant growth in 2007, though the voluntary market experienced the biggest boost, tripling in value with even more expansion expected.

In State of the Voluntary Carbon Markets, Ecosystem Marketplace and New Carbon Finance examine how and why the voluntary carbon markets have grown. The World Bank covers the global mandatory markets in State and Trends of the Carbon Market 2008.

The voluntary carbon market is still a small part of all carbon buying and trading, with a value of $331 million in 2007. The two major mandatory markets - the Kyoto Protocol's Clean Development Mechanism and European Union Emission Trading Scheme - were valued at $64 billion last year. But although the mandatory markets doubled in value, from about $31 billion, the voluntary markets more than tripled from its 2006 value of $97 million.

"A range of corporations are incorporating (carbon offsets) into their sustainability initiatives and it's here to stay," said Katherine Hamilton, associate director of Ecosystem Marketplace.

She cautions that the market's recent surge likely won't last forever. "The growth of the market is a point of debate, wheather this type of growth can be sustained," she said. She envisiones the market will eventually level out as supply and demand get more in line. Demand for carbon reductions, she said, will likely peak before supply does.

There are two main buyers of voluntary emission reductions, said Lauren Kimble of BlueSource, one of the report sponsors. Most are companies or individuals who purchase offsets and retire them so they can never be used again. But almost 30 percent of voluntary transations in 2007, she said, were considered pre-compliant, meaining a company purchased the offsets in the expectation they will be able to use them to comply with future regulations or resell them.

The mandatory markets' growth is still tied to countries making carbon transations to comply with reduction goals under the Kyoto Protocol's Clean Development Mechanism and European Union Emission Trading Scheme. But the World Bank report found that transactions appear to be leveling off and that demand from participating countries might fall since they are running out of time to fulfill their requirements by funding new projects.

The World Bank expects there to be a gap in demand for projects in developing countries in between the time countries reach their goals under Kyoto and when other countries like the United States and Australia create emissions regulations.

The report also found that there is a delay of 1-2 years in getting projects approved to be used under the Clean Development Mechanism. More than 2,000 projects out of 3,000 applicants have not been processed through the approval cycle. While they wait, though, they can sell offsets on the voluntary carbon market, and those offsets typically sell for less than approved projects, spurring sales.

Another factor increasing the value of the voluntary market is the type of project, Hamilton said. "A lot of th echeap projects went out of the market," she said. "A lot of people now want credits that are third-party certified...and there are just more costs involved in that." While reductions per ton ranged in price from $1.80 to $300, the avarage cost went up from $4.10 to $6.10 per ton.