A collaboration between the UK government, industry and NGOs has issued a draft code of conduct aimed at standardising definitions and reducing greenwashing in the voluntary carbon offset market.
Voluntary carbon credits allow companies to fund carbon sequestration through nature-based solutions such as forest preservation or restoration, renewable energy projects, or carbon capture and storage – to offset their greenhouse gas emissions. Industry reports suggest the voluntary carbon market reached a record high of more than $1 billion in 2021, and is on track to hit $50 billion in 2030.
While the use of offsets is seen as a necessary tool for companies to neutralise hard-to-abate emissions, particularly for carbon-intensive industries, there have been longstanding concerns about transparency and oversight in the sector. Experts also say offsets could incentivise companies to delay or avoid the work needed to cut real-world emissions within their value chain.
The code – published yesterday by the Voluntary Carbon Markets Integrity Initiative (VCMI) – aims to address the latter concern by placing an absolute priority on emissions reduction and limiting the type of emissions companies will be allowed to offset.
Mark Kenber, VCMI executive director, said at the code’s launch: “Companies should follow the accepted mitigation hierarchy, which is to say they should reduce or remove all the emissions they possibly can within their value chains. Only once they’ve exhausted the possibilities to reduce those emissions, can they turn to the use of carbon credits to cover any remaining emissions.”
VCMI has established three tiers for corporate offset claims. Under VCMI Gold, the most ambitious category, companies which are on track to meet interim decarbonisation targets for Scope 1, 2, 3 emissions have offset the entirety of their remaining emissions. VCMI Silver companies have offset at least 20 percent of residual emissions.
In contrast, VCMI Bronze companies are those which are on track to meet Scope 1, 2 emissions and have offset a maximum 50 percent of Scope 3 emissions as required by their interim targets. Companies must also offset at least 20 percent of remaining emissions. VCMI Bronze will be retired in 2030, after which accredited companies must achieve interim Scope 3 targets and graduate to VCMI Silver.
A VCMI spokesperson told Responsible Investor the initiative’s next work phase will include adapting the code to address portfolio decarbonisation directly. It is recommended that investors use the code in its current form to “scrutinise and benchmark claims made by the companies”.
VCMI is now seeking companies to beta test the code, which it says will “ascertain its practicality … for a diversity of sectors, geographies, and circumstances”. Hitachi, Google and Unilever have committed to pilot the code as of press time. Stakeholders are invited to provide feedback by 12 August, with a final version tentatively due in late 2022 or early 2023.
The code will also serve as “valuable input” to the work of the UN’s High Level Expert Group, which is putting together recommendations on net zero target-setting, UN climate adviser Selwin Hart said at the launch event.
VCMI, which is focused on the “demand side” of the offset market, is seen as complementing the work of the similarly named and funded Integrity Council for Voluntary Carbon Markets (IC-VCM), which targets the supply of carbon credits.
The UK-backed IC-VCM is developing a checklist to identify high-quality carbon credits and will assess existing carbon offsets programmes for compliance. Publication of the IC-VCM’s Core Carbon Principles and Assessment Framework is scheduled for Q4, following a public consultation next month.
Both VCMI and IC-VCM have committed to safeguarding the rights of indigenous communities, in response to concerns that the land-use requirements for nature-based carbon offset projects could result in the displacement of native populations from ancestral lands. IC-VCM recently announced the appointment of two indigenous representatives to the body, bringing the total to three.
The two organisations also share common personnel, with Kenber and two VCMI expert advisory group co-chairs holding concurrent positions on the IC-VCM board. VCMI is co-financed by the UK government and the Children’s Investment Fund Foundation, both of which previously funded the Mark Carney-led Taskforce on Scaling Voluntary Carbon Markets. The taskforce ceased operations following the publication of a market blueprint for carbon offsets in 2021 and the formation of the IC-VCM.