Scaling Voluntary Carbon Markets with Environmental Integrity
Participation in the Voluntary Carbon Markets (“VCM”) increased significantly last year and by November 9th a record US$1 billion in transactions, representing approximately 0.3 gigatonnes of carbon dioxide equivalent (Gt CO2e), had taken place in 2021.i In fact, McKinsey & Company forecasts that by the end of this decade, demand for voluntary credits could grow approximately 15 times from commitment levels estimated in 2020 to 1.5 to 2 Gt CO2e and be worth up to US$50 billion a year. By 2050, demand could increase approximately 100 fold to 7 to 13 Gt CO2e per year.ii This graphic sponsored by Carbon Streaming depicts the soaring demand for carbon credits projected in the VCM.
As with any industry entering a strong period of growth, project developers are racing to meet demand – all the more so because of the urgency for the world to decarbonize. However, as the carbon sector scales, it must do so in a way that delivers strong, proven environmental benefits over the long term. For all participants in the VCM, project quality is a crucial issue. As a result, ensuring the environmental integrity of voluntary carbon credits will provide organizations the confidence to include them as a viable and desirable part of their net-zero strategies.
The good news is that the path for responsible growth is being laid out rapidly. In September 2020, the Taskforce on Scaling Voluntary Carbon Markets (“TSVCM”) was formed. The TSVCM is a private sector initiative working to scale an effective and efficient voluntary carbon credit market. It was initiated by Mark Carney, UN Special Envoy on Climate Action, and is chaired by Bill Winters, CEO of Standard Chartered.
To achieve its goal, the TSVCM recently formed a governance body, the Integrity Council for Voluntary Carbon Markets or IC-VCM, comprised of distinguished leaders from a broad range of backgrounds (e.g. NGOs, academics, indigenous peoples groups and asset owners/managers) to develop the Core Carbon Principles (CCPs) as a standard to define a high-integrity credit.iii
Standardization is good because it creates a benchmark price and a benchmark quality. It is about creating a minimum threshold, which guarantees that all carbon credits will meet stringent criteria around additionality, local benefits, permanence, etc.”(Chris Leeds, TSVCM Board Member & head of carbon markets development at Standard Chartered)iv
Having a CCP standard that is accepted by the market will set a minimum threshold for quality and help establish benchmark pricing, which will enable project developers to better market their credits and buyers to find the credits that meet their needs.
Further good news is that the TSVCM is not starting from scratch when it comes to establishing the criteria for a high-quality voluntary carbon credit. There are currently a number of registries in the voluntary carbon markets with the goal of increasing credibility in the marketplace. These registries use rigorous, proven methodologies to validate carbon credit projects and verify that emissions reductions or removals have occurred prior to issuing credits. These internationally recognized non-profit programs include the Verified Carbon Standard (VCS) administered by Verra, The Gold Standard, American Carbon Registry, Climate Action Reserve, Puro.earth and Plan Vivo.
Carbon credits that are verified by one of these registries are generally required to meet the following criteria:
- Real and measurable. The emission reductions or removal must be realized and quantified based on a credible baseline using a recognized methodology expressed using standard greenhouse gas (GHG) metrics. They also cannot be double counted or double claimed.
- Additional. The project activity must be additional, meaning that it would not have existed in the absence of carbon market initiatives, and the project reduces emissions or removes carbon dioxide from the atmosphere beyond a business-as-usual scenario.
- Permanent. Carbon credits must represent emissions reductions or removals that will not be reversed after the credit is issued. If non-permanence is a material issue (e.g. wildfires) then buffer pools can sometimes be put in place to minimize that risk and account for reversals should they occur.
- Verified. The emissions reductions or removals from the project should be monitored, reported and verified by a qualified, independent third-party in accordance with verification standards.
- Avoids leakage. The carbon credit project should not lead to an increase in emissions elsewhere, or safeguards must be in place to monitor and mitigate any increase that occurs.
- Do no net harm. Projects should not violate laws, regulations or treaties and environmental and social safeguards must be in place to minimize detrimental effects.
Carbon credit projects can be differentiated based on their underlying social, biodiversity and sustainability co-benefits. TSVCM supports standardizing these additional attributes of projects in a common taxonomy. Today, projects can achieve additional accreditation for their co-benefits. For example, the Climate, Community & Biodiversity Standard (CCB) identifies projects that simultaneously address climate change, support local communities and stakeholders, and conserve biodiversity. The Sustainable Development Verified Impact Standard (SD VISta) assesses the sustainable development benefits of a project based on the 17 United Nations’ Sustainable Development Goals.
The TSCVM is making rapid progress. However, rather than waiting until global standards are in place, it is the responsibility of all players within the sector to help ensure the VCM grow hand-in-hand with environmental integrity. This is particularly true for those providing funding to carbon credit projects. They must do so in a way that supports responsible, environmentally-focused growth.
Carbon Streaming recognizes its responsibility and role in the VCM, and that is why we seek carbon credit projects that have or will be developed in accordance to one of the recognized standards in the VCM; but we also undertake our own due diligence on each of our investments. Since we are also focused on impact investing and making a sustainable impact above and beyond carbon reductions and removals, we also often seek projects that have accreditation for their co-benefits.
Carbon Streaming is a member of the International Emissions Trading Association (“IETA”), which aims to promote carbon markets that operate effectively and with integrity. IETA supports the work of the TSCVM as it lays the foundation for a scalable, transparent and reliable VCM.
Learn more about our membership in IETA, as well as our impact investing approach to carbon credits. We also encourage you to stay up to date with the latest Carbon Streaming news and new Carbon Blog posts by signing up to our email list and following us on Twitter and LinkedIn.
i Ecosystem Marketplace, A Special Ecosystem Marketplace COP26 Bulletin
ii McKinsey & Company, “A blueprint for scaling voluntary carbon markets to meet the climate challenge,” January 2021
iii TSVCM, New Governance Body on Voluntary Carbon Markets, September 2021.
iv Euromoney, “Banks eye voluntary carbon markets as Carney’s taskforce gears up,” October 4, 2021.
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