VCM round-up: Global carbon offset standards launched as UK mulls steps to boost market

Latest Core Carbon Principles release covers programme-level requirements on the governance of carbon credits.

Deforested area in Brazil

The Integrity Council for the Voluntary Carbon Market (ICVCM) last week launched a flagship certification programme, which it hopes will create a “regulated-like market” for carbon credits, allowing users to identify high-quality schemes.

At the same time, the UK government said it was looking to “unlock” voluntary markets for carbon and nature, and become a global hub for voluntary carbon trading.

“We will consult on the specific steps and interventions needed to support the growth of high-integrity voluntary markets and protect against greenwashing,” the government said in its Green Finance Strategy, published last week.

The aim of interventions would be to integrate offsets into “the long-term strategy for financial disclosure and transition planning”, it added.

The moves could be a milestone for the rapidly growing sector. According to the Boston Consulting Group, the voluntary carbon market was worth $2 billion in 2021, four times the previous year’s total. It is tipped to reach between $10 billion and $40 billion by 2030.

ICVCM’s announcement marks the culmination of a private sector-led process, initially headed by its predecessor body the Taskforce on Scaling Voluntary Carbon Markets (TSVCM), one of a cluster of environmental initiatives launched by Mark Carney ahead of COP26 in 2021. It follows a consultation on a draft version of the programme requirements last year.

The rules are the most far-reaching attempt to date to introduce consistency and high-quality global requirements at a time when prices in the voluntary carbon market have sunk.

Platts CNC, an assessment that tracks prices of the most competitive nature-based carbon credits, stood at $2.05 per metric tonne of CO2 at the end of March, only marginally up from an all-time low of $1.70 in February. S&P Global Commodity Insight attributed the decline to perceived reliability issues.

To achieve ICVCM certification, carbon crediting programmes must meet the requirements of the Core Carbon Principles (CCP), which set standards for how carbon credit schemes are governed, and how the credits they produce are validated and tracked.

The recent release covers programme-level requirements on the governance of credits, such as the use of a registry to track issuance, and approved methods of calculating emissions impact, and social and environmental impacts.

A final release, scheduled for Q2, will establish specific CCP standards for different categories of credits such as afforestation, renewable energy, waste management and clean cookstoves.

Fundamentally, the CCPs require providers of carbon credits to prove “additionality” or that carbon reduction or removal would not have happened without the cash generated from the sale of their products. This means that forests that are already protected under law, for example, or financially viable renewables projects cannot be used to produce carbon credits.

The introduction of the CCPs is “very good news”, Raúl Rosales from Imperial College’s Centre for Climate Finance and Investment told Responsible Investor. “It provides a market-wide benchmark for high-integrity credits, mitigating risks for carbon credit investors, and reducing market fragmentation. It helps to build up the market efficiency and transparency required for VCMs.”

He added that the goal should be “to achieve transparency, integrity and market efficiency, scaling up VCMs through a ‘regulated market infrastructure'”.

Heather McKay, expert on UK sustainable finance at independent climate change think tank E3G, also welcomed moves towards sector standardisation. “Given the inevitable role that carbon markets will play in the global net-zero transition, clear guidance and regulation around these markets will be critical. Voluntary carbon markets have been rightly criticised in the past for not being additional, verifiable or effective at reducing global emission.”

Updates to CCPs

The most notable update to the CCPs since last year’s draft version is the creation of a fast-track route to certification for schemes that are eligible under CORSIA, an aviation-sector-linked standard associated with 95 percent of existing carbon credits.

This means that, when applications for the CCPs open in Q2, CORSIA-eligible schemes will undergo a two-month assessment process compared with four months for other schemes.

ICVCM has also established a stakeholder consultation process to strengthen environmental and social safeguards in the next version of the CCPs, due to be launched in 2025 and implemented the following year. Areas to be considered include making credit schemes more inclusive of marginalised and local communities, ensuring the consent of local and native communities, and biodiversity.

The council noted that it received more feedback on environmental and social safeguards than on any other area in the consultation from the 1,000 or so organisations that responded.

Market pushback

The ICVCM has made its independence from the offsets market a centrepiece. “There was a real consensus that an independent governance body was needed to help build confidence in the market and in quality credits,” COO William McDonnell told Responsible Investor.

Its 22-person board boasts high-profile finance and environmental luminaries including former SEC commissioner Annette Nazareth as chair, economist Nicholas Stern, Standard Chartered CEO Bill Winters, Chinese ESG pioneer Ma Jun and Mark Carney.

Just three positions are reserved for elected market representatives, who cannot vote on the content of the CCPs. One of these is David Antonioli, CEO of Verra, the world’s most widely used carbon credit programme by some distance.

Responding to the consultation on the draft CCPs last year, Verra criticised the idea that “a limited set of individuals can create the rules for a broad and emerging market”. The organisation concluded that the principles would “satisfy purists but do nothing to drive investment at the scale needed around the world to combat the climate crisis”.

Asked about Verra’s statements, a spokesperson for the ICVCM said: “There are different views on how to achieve this, which we have considered carefully and taken into account. This is a normal part of the regulatory approach to developing standards.”

Verra said it was “supportive” of the ICVCM’s work and the consultation’s outcomes when approached for comment on the CCPs last week. It did not say whether it would apply for certification.

In contrast, Gold Standard – the second-largest carbon credits scheme by volume – told Responsible Investor it was disappointed that the CCPs did not go further.

“We do not believe they represent a significant step forward,” it said. “Most of what is included already exists in the market, particularly at Gold Standard. The CCPs promote a qualitative assessment of SDG impact, which fails to align with the UN’s SDG framework – which promotes quantification of impact and contributions.”

The scheme said it would apply for certification and anticipated that “aside from one or two areas of minor update, we already meet and largely exceed the CCPs”.

Figures from 2021 show that Verra accounted for nearly 70 percent of the carbon credit market, while Gold Standard had a 17 percent market share. Gold Standard, which is co-founded by the WWF, is known for having some of the most stringent requirements among competing providers.