An independent governance body for voluntary carbon markets has today issued draft standards which it hopes will allow users to identify high-quality carbon credit schemes.
Voluntary carbon credits allow companies to fund carbon reduction and storage through nature-based solutions such as forest preservation or restoration, renewable energy projects or technology-based storage – which can then be used to offset their greenhouse gas emissions.
The new rules are a milestone for the sector and mean that both users and providers of carbon credits will now be subject to strict guidelines if they wish to be accredited by their respective governance bodies. They follow the issuance of an integrity code for users last month by the Voluntary Carbon Markets Integrity Initiative, which included requirements for organisations to prioritise real emissions reductions and limited the type of emissions companies will be allowed to offset.
The two sets of guidelines are intended to boost stakeholder confidence in the voluntary carbon credits ecosystem, which has boomed in recent years despite having no unified standards or governance mechanisms. While the use of offsets is seen as a necessary tool for companies to neutralise hard-to-abate emissions, critics have said that users could be incentivised to delay or avoid the work needed to cut real-world emissions within their value chain, despite many credits doing little to curb emissions.
Proof of ‘additionality’
The provider-focused standards, released by the Integrity Council for the Voluntary Carbon Market (IC-VCM), require carbon credit schemes to prove “additionality”, ie that carbon reduction or removal would not have happened without the issuance of credits.
Aside from requirements to identify and track the volume of carbon which has been neutralised, providers must include measures to keep emissions out of the atmosphere once they have been absorbed – a concept known as “permanence”. This is particularly key for nature-based solutions such as forest reserves, which are vulnerable to forest fires or land clearing.
Providers who seek to comply with the guidelines can either utilise temporary credits, which will need to be replaced following an expiration date, or a compensation mechanism for users in the event that storage has been compromised.
In addition, providers must demonstrate that their projects require funding from carbon credits to be financially viable. This is relevant for activities which generate independent revenue, such as renewable energy projects, where “if a particular type of mitigation activity is found overwhelmingly profitable in the marketplace, credits issued to these activities would not be considered… eligible”.
Providers will be accredited by IC-VCM following a successful assessment by third-party auditors against the finalised guidelines, although the Integrity Council has signalled that it will provide oversight when necessary to ensure audits are up to mark. Code breaches and fraud can be punished by termination, including the retroactive removal of accreditation from credits which have already been issued.
Verra, which oversees one of the most widely used existing standards for carbon credits, has been contacted for comment.
IC-VCM has also included provisions to safeguard social and environmental factors, such as preventing harms to local and native populations, and local biodiversity. These requirements are process- rather than outcome-driven, meaning that providers will be assessed on whether they have the appropriate policies and processes in place, rather than the quality of their performance.
“We do not have the resources to directly enforce our current accrediting programs nor do we really want to do this,” said Pedro Barata, chair of IC-VCM’s expert advisory group, which developed the code. “If companies have the right measures in place, then material issues will be spotted by the reviewer during the community consultation stage. We reserve the right to withdraw accreditation for projects which violate the guidelines.”
Delivering critical funding to indigenous and native communities is a key deliverable of the IC-VCM, which has described their role as “inextricably linked with our ability to achieve our collective climate and sustainable development goals, and high-integrity carbon credit”. Native communities manage around 40 percent of the planet’s remaining intact ecosystems, according to the Council.
But the IC-VCM has struggled to fill in the three board positions reserved for indigenous representation – two of which are currently empty. This has been not for lack of trying, a spokesperson said, noting that a number of successful candidates have subsequently withdrawn their interest.
IC-VCM is fully funded by philanthropic capital, which includes contributions from UK-based board member the Children’s Investment Fund Foundation, but is currently exploring a “more sustainable” fee-based model.
Stakeholders are invited to respond to the provisional guidelines by the end of September. Assessments of carbon credit schemes are expected to commence in Q1 2023, following the code’s finalisation.