Regulatory uncertainty in the voluntary carbon offset market. The case of the carbon offset project developer.

Abstract

The voluntary carbon offset market is becoming an important instrument against climate change yet faces an ambiguous future with the introduction of a new global climate regime under the Paris Agreement. With as a result, the project developers in this market are facing substantial regulatory uncertainty. These organisations have been dealing with (regulatory) uncertainties multiple times as they are characteristic for carbon markets. This makes the project developers experts in dealing with uncertainties. However, academic literature has given little attention to regulatory uncertainty in the voluntary market and to how actors experienced in operating in carbon markets cope with this uncertainty. Hence, this thesis aims to examine regulatory uncertainty in the voluntary market and how project developers perceive and respond to this uncertainty. In total, the strategic behaviour of 17 project developers is analysed by conducting qualitative research. This research involved 17 semi-structured interviews complemented with secondary data and observations during a five-month internship at the project developer FairClimateFund. This study found that the project developers perceive the regulatory uncertainty as non-threatening. The project developers show great confidence in the future and their ability to cope with the regulatory uncertainty. High market potential combined with their expertise in operating in carbon markets, and for some of them, their independence of carbon markets influence how they perceive and react to the regulatory uncertainty. The project developers show both a general strategic behaviour as three strategic postures in their coping with the uncertainty. With these strategic postures, they pursue a different goal. They either aim to solely follow the developments around the Paris Agreement, build resilience towards the regulatory uncertainty, or influence the outcomes of the regulatory uncertainty. They are found to pursue strategies aiming to avoid, reduce, adapt and disregard uncertainty. The results indicate that actors can choose different strategies with different goals simultaneously with regards to regulatory uncertainty. They tend to use their experiences with previous uncertainties and build on earlier taken strategic actions in their coping with uncertainty. Future research is needed to identify how other actors in the market deal with the regulatory uncertainty or how regional or cultural differences effect the strategic behaviour of project developers.