The Voluntary Carbon Markets Integrity Initiative (VCMI) has finalised a global rulebook for carbon credit buyers in a move seen as critical to improving market confidence over the use of carbon offsets.
The “claims code of practice” has undergone revisions over the past 12 months to include changes to assurance requirements and ambition levels, after taking into account market feedback and beta testing by some 70 corporates. It follows the release of a provisional draft in 2022.
Carbon credits could help make up for significant climate financing gaps in emerging markets and provide economic benefits to local communities, VCMI said in a statement. But it warned that without high integrity rules, voluntary carbon markets “will rightly continue to be viewed with suspicion, companies will be afraid to invest, and their potential will be lost”.
The use of carbon offsets is seen as a necessary tool for companies to neutralise hard-to-abate emissions but there have been longstanding concerns that offsets could incentivise companies to delay or avoid the work needed to cut real-world emissions within their value chain.
The code of practice addresses this by placing an absolute priority on emissions reduction and limiting the type of emissions companies will be allowed to offset in pursuit of their climate targets and commitments.
Its release comes as regulators weigh up the need for intervention in both the demand and supply-side of the voluntary carbon market.
Dutch regulator AFM has spoken of the need to “define a supervisory view” of these markets in view of their links to supervised financial entities, while the UK is considering regulation on how companies use offsets and integrate them within their transition plans.
In the US, derivatives regulator the Commodity Futures Trading Commission has organised a series of hearings to inform potential new guidance on voluntary carbon markets.
The publication of the code was welcomed by the $6 billion Children’s Investment Fund Foundation (CIFF), which called on companies to seek the most ambitious carbon credits in a statement to Responsible Investor.
“This is a key step on the pathway to high-integrity, harmonised regulation of carbon markets, which is the north star. Robust carbon markets have the potential to enable additional climate action – beyond urgent decarbonisation – and can channel finance to where it is most needed,” said a CIFF spokesperson.
Climate target-setting programme the Science Based Target initiative (SBTi) said it will provide support and guidance to companies that make VCMI claims, while sustainable finance NGO Ceres said the code would help identify climate leaders.
Code of practice structure and revisions
Accreditation will only be granted to companies that have already cut emissions in line with their near-term decarbonisation targets – usually dated around 2030 – for Scope 1, 2 and 3 emissions as validated by the SBTi.
Offsets can only be used for emissions that are additional to those targets, or “residual emissions”, which make up no more than 5-10 percent of a company’s entire carbon footprint.
Companies can choose three badged tiers (Platinum, Gold and Silver) for claims based on the proportion of residual emissions they want to offset. The most ambitious Platinum category will see them offset entirely, while the “most accessible” Silver tier will be granted to offsets covering more than 20 percent but less than 60 percent of emissions.
There are also behavioural requirements for companies to align their public lobbying activities and those of membership bodies to ensure they do not “represent a barrier to ambitious climate regulation”.
Companies will only be allowed to purchase carbon credits certified by the Integrity Council for the Voluntary Carbon Market (ICVCM), the supply-side sister initiative to the VCMI, which sets standards for how carbon credit schemes are governed, and how the credits they produce are validated and tracked.
Finally, companies must seek third-party assurance to demonstrate their compliance with the code of practice. A subsequent module on how to undertake assurance and monitoring will be released by November, after which VCMI will start reviewing the first claims submitted by companies.
VCMI has scrapped an earlier lower-tier Bronze claims category after some market participants said it “was not attractive enough to be adopted”. The organisation is also reviewing its assurance guidelines after feedback from “all auditors” suggested that the guidance provided was insufficient to verify claims.
Going forward, VCMI said it will consider additional provisions to support carbon-intensive sectors, companies based in based in “less economically developed countries” and SMEs. It will also examine how claims can be made by financial sector companies, given the indirect nature of financed emissions.