Under the CDM, projects can only earn UN-backed carbon credits once they have been monitored in line with UN rules.

But projects aspiring to the CDM can get voluntary credits for emissions reductions made before getting registered with the UN.

"Around 50 per cent of voluntary carbon credits being traded are pre-CDM credits and they really should be in the compliance market and not in the voluntary market," said Simon Petley, CEO of consultancy Enviromarket.

This is a huge leap from last year, when pre-CDM credits accounted for just 2 per cent of the entire brokered market, according to analysis from Ecosystem Marketplace and New Energy Finance.

Voluntary slowdown

The global economic crisis and weakening prices for voluntary credits have also helped stem the flow of investment to non-compliance projects.

Developers say this is preventing emission cuts in countries, regions or technologies yet to play a major role in the CDM.

The current focus on project types popular in the CDM, such as landfill gas and energy efficiency, may prove less attractive for voluntary buyers.

Such firms are more likely to be attracted to highly-marketable, PR-friendly credits generated from areas like wind and solar power, delegates at Green Power’s Voluntary Carbon Markets conference in London heard.

"Pre-CDM credits are a by-product of the failure of the CDM process," said Sacha Lafeld, a board member with German consultancy First Climate.

Uncertainty over which type of voluntary standard the credits are accredited under is also holding back potential buyers, according to Ecosecurities’ Ashford.

US doubts

The expectation that voluntary credits could eventually be used to comply in a US carbon market has propped up prices over the past year as the economic recession curbed demand.

But as the legislation takes shape, fears are growing that a large share of credits developed in the voluntary market could be ruled out of being used in a US cap-and-trade scheme.

Martin Berg, a carbon trader with Bank of America Merrill Lynch, said many types of voluntary carbon credits - including those traded on the Chicago Climate Exchange (CCX) - would be unlikely to be permitted as compliance offsets.

"It is unclear whether CCX will be in the final bill, which led to a price drop of the CCX instrument,” Berg said, adding that the market is uncertain until clearer details emerge on offset provisions in the Boxer-Kerry Senate bill.

The CCX, which accounts for around 56 per cent of voluntary market transactions, according to New Energy Finance, trades credits sourced mainly from coal mine methane, agriculture, landfill gas, fugitive emissions and forestry, but doubts over their environmental integrity have been raised in the general media.

Meanwhile, the credits certified by the Gold Standard, which are deemed to score highly in terms of environmental credibility, are also unlikely to be included in a future US scheme.

This is because the standard’s predominant project types are renewable energy and energy efficiency, which are excluded from the Senate bill.

The credits approved by the Voluntary Carbon Standard and Climate Action Reserve could stand a better chance of being permitted for use in a US compliance market, Berg said.

However VCS faces a major hurdle in that many credits are generated from pre-CDM, and US legislation is unclear to what extent CDM project types will be allowed, he added.