Among climate wonders, few topics generate as much debate as the role of voluntary carbon markets in the fight against global warming.
To some, voluntary markets that allow companies to cut their greenhouse gas emissions are a scam — a way for industry to say it’s reducing climate pollution without an official way to control it.
To others, these markets offer incredible potential. Proponents say a system that forces polluting companies to pay for their emissions is one of the best ways to encourage the business world to invest in climate action.
Currently, there is a major effort to introduce a voluntary carbon market and implement uniform rules. Meaningful guidelines, the thinking goes, would make it easier for companies to access the system and give it much-needed legitimacy.
The effort could determine whether the voluntary carbon market—estimated at $2 billion worldwide—is contributing to the global climate battle or making the situation worse.
“I don’t think anyone thinks that voluntary markets will solve climate change,” said Derik Broekhoff, a senior scientist at the Stockholm Environment Institute and former vice president of the Climate Action Reserve, a leading international carbon credit registry.
But if used responsibly, voluntary carbon markets can “channel billions of dollars toward climate change mitigation around the world that would otherwise not be forthcoming,” Broekhoff said. “That’s what’s at stake.”
Voluntary vs mandatory
One major obstacle to voluntary carbon markets is that participation is optional – and completely unregulated.
It separates voluntary carbon markets from government-backed “compliance markets,” which require companies to manage their carbon emissions. One of the few mandatory examples in the United States is California’s cap-and-trade program, which was launched in 2013 and mandates a reduction in the emissions of major polluters, which they can then offset in part by buying and trading carbon credits. .
For medium-sized businesses, the appeal of voluntary carbon markets is a good marketing mix and ensures they won’t be locked into the clean energy transition. Companies can use voluntary carbon markets to reduce their carbon footprint, burnish their public image, or—in many cases—both.
Those markets have exploded in recent years amid an onslaught of lofty corporate climate targets — many of which rely in some way on carbon emissions. That’s because voluntary carbon markets have quadrupled between 2020 and 2021, according to Ecosystem Marketplace, an environmental finance nonprofit.
“The voluntary carbon market now, yes, it’s booming,” said Pedro Barata, vice president at the Environmental Defense Fund. “But it’s growing from a very low base with not a lot of infrastructure around it.”
Working to solve that problem: two international groups that are months away from forming new watchdogs that want to regulate the market.
These organizations – the Union Council for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Market Union Initiative (VCMI) – were launched in 2021, and include representatives from governments, businesses, non-profits and more.
Both groups have already released preliminary versions of their guidelines — and plan to release final iterations in the first quarter of this year. ICVCM focuses on the characteristics that will justify a specific carbon emission project. VCMI’s work looks at the other side of the coin: how companies should be allowed to use markets.
In keeping with their approach, they stand the standard of being the first international advocates around unregulated markets.
Not everyone is on board. Critics say third-party efforts to disrupt markets are unlikely to move the needle — and may provide even more cover for bad corporate behavior. French nonprofit Reclaim Finance, for example, has argued that any attempt to expand carbon markets is “risky at best from a climate perspective.”
But supporters say it’s an important effort because the credibility problem will only worsen if the market remains unregulated. Another possible outcome: companies freeze in an uncertain market and increased corporate scrutiny – handing over billions of dollars for climate action.
“The voluntary carbon market is all about trust,” EDF’s Barata said. “If you don’t have that, companies just go away.”
Voluntary carbon markets have been around for decades. But they have taken off in earnest in the last few years amid a flood of corporate climate commitments — and resulting concerns about the role of change in their implementation.
This has ushered in “an era of aggressive rational action” to make carbon markets truly facilitate the transition to clean energy and deliver dollars to the people and places that need it most, said Rachel Kyte, former dean of Tufts University’s Fletcher School. World Bank Group special representative for climate change.
That era, as Kyte said, began in September 2020, when sustainable finance heavyweight and former Bank of England governor Mark Carney announced the launch of a Taskforce on Scaling Voluntary Carbon Markets. The idea was to create a group of experts to write a “bill” that would expand and regulate the controversial markets by zeroing in on carbon credits and the projects that underlie them.
Last summer, the board released a roadmap that includes creating an independent, sustainable body to take over the group’s mission — and ultimately finalize guidelines on carbon offsets using corporate feedbacks, carbon records, green groups and more.
And so the United Council for the Voluntary Carbon Market, an organization made up of dozens of climate change and carbon market experts, was born.
Broekhoff, who sits on ICVCM’s expert panel, said the group’s “theory of change” is to provide a “seal of approval” that can make it less risky for companies to buy quality replacements. “And that will grease the boots of the market.”
Of course, ICVCM is not the first group to address the issue. Organizations known as carbon credit registries have long set their own standards for carbon sequestration, certified according to them and then published them on the market. The four main ones are Verra, the Gold Standard, the Climate Action Reserve and the US Carbon Registry.
The diverse policies and practices of major registries—along with recurring disputes over approved changes and the proliferation of newer, less well-known standards—have convinced outside groups that there is a need for increased oversight and oversight.
Just the latest example: an investigation this week by The Guardian. She examined some of Verra’s rainforest conservation projects and found that 90 percent of the certified forest carbon offsets in them are “very worthless and could worsen global warming” because they do not represent legitimate carbon reduction.
Verra forcefully denied the discovery. In a statement, Verra CEO David Antonioli called the article inaccurate – accusing the researchers of using a flawed methodology, ignoring the organization’s updated methods and downplaying the “remarkable success” of Verra’s efforts to protect forests.
Further monitoring of voluntary carbon markets means self-auditing registries to ensure they have basic governance policies in place to prevent conflicts of interest, e.g. But it will also require the creation and enforcement of standards for carbon credits that issue registries.
“Can you [describe] our job is basically to assess the quality of their work,” said Barata, who co-chairs ICVCM’s expert panel.
Among the most important issues the group will focus on is whether the carbon credits are “redundant”—that emissions reductions would not have occurred without carbon offsets—and that they are permanent. Also critical: ensuring carbon credits do not finance projects that have negative impacts on the environment or surrounding communities.
Gold Standard supports ICVCM’s goal to bring carbon credits and standards to the highest levels of quality — and it wants to integrate the group’s “fundamental carbon principles” with a review of their final form, spokeswoman Jamie Ballantyne said in an email. said. .
Verra, for its part, supports ICVCM’s goals. But spokeswoman Anne Thiel said in an email that the company was concerned the group would impose a “rigid, one-size-fits-all approach” that would duplicate existing work, fail to adequately account for externalities and be “unfeasible.” to fulfill
Verra believes that taking that approach — as opposed to a “principles-based review” of existing standards — would “severely reduce” the dollars flowing to projects on the ground.
The Climate Action Reserve and the US Carbon Registry did not respond to a request for comment.
ICVCM’s current plan is to issue a first batch of requirements in February – which will focus on records – with a second batch coming in March which will focus exclusively on loans.
Gold, silver or bronze
Difficulties do not overlap. Another key issue: Even if companies are investing in legitimate climate projects with sustainable climate benefits, that doesn’t mean they’re using them responsibly.
According to Kyte, it quickly became clear “that a different group had to work on the demand side, and look, well, what is the integrity of a claim that a company can make when it uses a voluntary carbon market.”
Enter the Voluntary Carbon Market Integration Initiative, or VCMI, which is supported by the UK and is made up of climate and carbon market experts from a range of organisations. VCMI’s goal is to create a code of conduct to make it clear that companies with net-zero goals must first work to avoid new emissions – and then reduce their existing emissions – before they can move on to tackling residual waste. .
“What people are concerned about is companies that rely heavily on carbon credits,” Broekhoff said.
That concern is not without reason. Thousands of companies have set ambitious climate goals in recent years but few details how they plan to get there.
VCMI launched its first code of practice over the summer. If it pans out, it will award companies a VCMI mark – gold, silver or bronze – based on their climate commitment and demonstrated use of the switch. For example, to achieve “gold” status, a company must be on track to meet its interim climate goal by actively reducing emissions associated with its operations, electricity use and supply chains – while reducing emissions by 100 percent. which cannot be reduced immediately. .
Kyte, who co-chairs the group’s executive committee, said the tiered approach aims to provide an entry point for companies facing higher barriers to decarbonisation, such as technological challenges or operating in an emerging market, as long as they can begin to address a larger portion of their carbon footprint.
The idea is that a label from VCMI would clarify when it’s appropriate for companies to rely on fees — and which companies are acting accordingly.
VCMI is on track to release an updated version in March, Kyte said.
‘Where is the responsibility?’
Even after the two standards are released there will be other issues to address. The main thing: responsibility.
“If you say you’re VCMI gold, who’s checking to see if you really are, right? Where’s the accountability?” “There are a lot of pieces of a mature market that don’t exist yet,” Kyte said, but will be in the works next year, she said.
Another challenge will be striking a balance between setting standards that can essentially translate into voluntary carbon markets and ensuring that those standards are not so strict that companies look elsewhere for guidance or move away from carbon markets altogether.
“The reason a lot of people want these guards to work and be widely accepted is because there can be so much business because of the confidence you get,” Kyte added. “The more trade we can have, the more we can start to see the benefits [the markets] where it’s really needed.”