Recent Developments in Voluntary Carbon Markets | Morgan Lewis

With increasing focus on the transition to clean energy and a low-carbon economy, companies continue to turn to voluntary carbon markets and purchase carbon credits to decarbonize their operations and meet their emissions reduction goals. However, several factors – the need for additional transparency, standardization and accountability – may discourage buyers of carbon credits from fully trusting voluntary carbon markets, despite their recent growth. In 2021, voluntary carbon markets quadrupled from 2020 to a market value of approximately $2 billion.

Carbon credit buyers have inspired confidence that the carbon credits being traded represent a real reduction or removal of one tonne of carbon emissions from the atmosphere. Many have also expressed the need for harmonization in voluntary carbon markets, as different voluntary carbon markets currently have different standards. Adopting a common set of standards that apply to all carbon credits and define what constitutes a quality carbon credit can help build trust and integrity in voluntary carbon markets. It can also facilitate verification and evaluation of how a carbon credit is generated and ultimately used.

Managing these factors can stimulate additional participation in the markets and allow the markets to continue to expand and be more liquid and resilient.


The voluntary carbon markets are separate and distinct from the mandatory carbon markets, where regulated companies buy and sell emission allowances and credits to meet regulatory obligations. The voluntary carbon markets facilitate the buying and selling of carbon credits for non-compliance with legal obligations. For example, companies often purchase carbon credits through the voluntary carbon markets to offset or mitigate emissions that cannot otherwise be reduced through direct emissions reductions in order to meet their climate commitments and emissions reduction targets.

The voluntary carbon markets enable the exchange of carbon credits in many industries, including the following:

  • Renewable energies, including biogas, hydro, solar and wind
  • Forestry and land use, including afforestation, reforestation, revegetation and forest management
  • Transport, including public transport and shipping
  • Chemical processes and industrial manufacturing, including carbon capture and storage
  • Waste management that includes recycling, waste gas recovery and waste gas avoidance
  • Energy efficiency and fuel switching
  • Household and municipal services, including lighting efficiency
  • Agriculture

In 2021, the forest and land use industry was the largest source of carbon credits traded on the voluntary carbon markets, closely followed by the renewable energy industry.

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Efforts are being made to produce a definitive and consistent global benchmark for highly integrated carbon credits that would be applicable to those transacted in the voluntary carbon markets.

Voluntary Initiative on Carbon Market Integrity

The Voluntary Carbon Markets Integrity Initiative (VCMI), a multi-stakeholder platform promoting credible, net-zero oriented participation in voluntary carbon markets, published its draft Core Carbon Principles for stakeholder input in June 2022. Companies have committed to testing these draft principles in the second half of 2022 and to working with VCMI to refine them.

The draft Core Carbon Principles are as follows:

  • Fulfill the requirements. Prior to the voluntary use of carbon credits, a company must, among other things, make a public commitment to achieve science-based, long-term net-zero emissions by 2050 at the latest and provide detailed information on the plans and strategies to achieve these goals.
  • Identify the claims to be made. A company must make enterprise-wide claims (i.e., enterprise-level performance toward the long-term net-zero commitment in addition to purchasing and retiring carbon credits to help accelerate global emissions reductions) or brand, product, and service-level claims (i.e., performance across the value chain of a given brand, product, or service as the company progresses towards its net-zero long-term commitment).
  • Buy high-quality CO2 certificates. To meet the basic criteria for high-quality credits used for claims, credits must (1) be affiliated with a recognized and credibly governed standards organization that provides transparent, independent and robust methods for quantification, validation, registration and monitoring, review, approval and withdrawal tracking; (2) reflect reductions and/or removals in excess of what would occur without the demand for carbon credits and are monitored, measured, robustly quantified and independently verified by a credible independent third party; and (3) come from activities that promote equity, apply social protection measures, demonstrate positive socioeconomic impacts, and contribute to the protection and enhancement of environmental quality.
  • Report transparently on the use of carbon credits. A company must provide complete information in publicly available annual reports to demonstrate that the requirements and eligibility requirements have been met and explain how the company uses carbon credits towards its climate commitments, targets, targets and claims.
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VCMI’s draft Core Carbon Principles provide general guidance and basic criteria on what constitutes “high quality” carbon credits, and recognizes that other initiatives, including one led by the Integrity Council for Voluntary Carbon Markets, will provide detailed guidance on what constitutes a high-quality carbon accounts for recognition.

Integrity Council on Voluntary Carbon Markets

The Integrity Council for Voluntary Carbon Markets (Integrity Council), an independent governing body for the voluntary carbon markets created to set and enforce final global threshold standards for high quality carbon credits, released its draft Core Carbon Principles, Assessment Framework and Evaluation Procedures in July 2022 for public consultation. The purpose of the Core Carbon Principles, Assessment Framework and Assessment Process is to provide a rigorous and accessible means of identifying high quality carbon credits that produce real, additional and verifiable climate impacts with high environmental and social integrity.

The Integrity Council’s draft Core Carbon Principles include the following overarching principles:

  • additionality
  • Comprehensive and transparent information on mitigation activities
  • No double counting
  • durability
  • Effective program governance
  • Carbon credit registry
  • Robust independent third-party validation and verification of mitigation activities
  • Robust quantification of emission reductions and eliminations
  • Impact and safeguards for sustainable development
  • Transition to net zero emissions

The draft assessment framework provides guidance and criteria for the Integrity Council to assess whether carbon credits meet the high quality threshold, and the draft assessment process is used to assess carbon credit schemes and credit types to determine whether they are suitable for the Core Carbon Principles .

Following the conclusion of the public consultation period on September 27, 2022, the Integrity Council will issue the Core Carbon Principles, Assessment Framework and Assessment Process in Q4 2022.

The creation and implementation of these principles, standards and benchmarks should help address the fragmentation of voluntary carbon markets and allow buyers to more easily identify high-quality carbon credits at transparent prices.

As many have noted, standardization can help provide confidence in the quality of carbon credits and that the carbon credits traded represent an actual reduction or avoidance of carbon emissions. This, in turn, should encourage confidence in the price at which emissions allowances are settled and in the contracts associated with such transactions. As such, standardization can help facilitate core carbon futures and spot contracts and encourage additional participation and liquidity in voluntary carbon markets.

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As these standards continue to be reviewed and evolved, the US Commodity Futures Trading Commission (CFTC) is currently evaluating the extent of its role in regulating carbon credits and carbon markets.

In June 2022, the CFTC hosted a first-ever Voluntary Carbon Markets Convention to discuss the voluntary carbon markets and issues related to supply and demand for high quality carbon credits, and to gather input from market participants on the CFTC’s role in regulating carbon credit markets . Several carbon credit derivative contracts have been listed on the regulated exchanges of the CFTC and more are expected to be listed. Against this background, the CFTC recognized the need to strengthen its capacity to ensure the integrity and credibility of carbon credit markets, to detect and prosecute potential fraud or other abusive practices, and to promote responsible innovation and fair competition.

Discussions at the Voluntary Carbon Markets convening confirmed the need for additional transparency, standardization and integrity in the Voluntary Carbon Markets and that many market participants believe the CFTC can play a critical role in facilitating standardization and harmonization across the various Voluntary Carbon Markets.

Separately, the CFTC has issued a request for information to improve its understanding and oversight of climate-related financial risks related to the derivatives markets and underlying commodity markets, including voluntary carbon markets. The CFTC is requesting information on the following:

  • Whether there are ways the CFTC could improve the integrity of voluntary carbon markets and promote transparency, fairness and liquidity in those markets
  • Whether there are aspects of voluntary carbon markets that are susceptible to fraud and manipulation and/or merit increased oversight by the CFTC
  • Whether the CFTC should consider creating some form of registration framework for all market participants within the voluntary carbon markets to enhance the integrity of the voluntary carbon markets, and if so, what that registration framework would entail

The CFTC may use the information collected through the information requestwhich will remain open to public comment until October 7, 2022 to issue new or amend existing guidance, policy statements and regulations or take other action.

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