The Integrity Council for the Voluntary Carbon Market plans to publish in March a set of standards that would award offset registries a seal of approval
A group seeking to improve carbon-credit standards will publish labeling rules in March that are intended to ease corporate buyers’ concerns and help improve the nascent market, but companies will still face a patchwork of standards applied by the various registries offering the offsets.
The Integrity Council for the Voluntary Carbon Market said it would publish a set of Core Carbon Principles that will test the verification processes used by carbon-credit registries such as Verra and Gold Standard. Around the third quarter of this year, credits meeting the standards will receive a CCP-compliant badge—a seal of approval akin to the certifications awarded to producers of organic food.
The principles aim to reassure corporate buyers that the credits do what they promise, a concern that has held back the market after numerous investigations have revealed credits that failed to deliver.
ICVCM is one of many groups working to develop carbon-credit markets. It is a topic on the agenda at this year’s United Nations climate conference, and the U.S. State Department-backed Energy Transition Accelerator is also working to fund high-quality projects that draw on the host of market standards.
Voluntary carbon credits get verified by registries for projects that promise to avoid—or in rarer cases remove—emissions from the atmosphere. A variety of activities are covered, including planting trees, sustainable farming practices near rainforests, installing cleaner stoves in poor communities and supporting renewable-energy farms in the developing world. There are also separate, government-created regulated carbon credit markets.
Market opportunity
The value for voluntary carbon credits is currently more than $2 billion, but many observers have predicted huge growth in the market as businesses buy credits to offset their emissions while they decarbonize their operations. The consulting firm McKinsey & Co. in 2021, for instance, estimated the market could be upward of $50 billion by 2030.
Despite the growth expectations, so-called retirements of credits, which typically measure companies claiming them against their emissions, fell around 3% in 2022 from 2021, compared with average annual growth of 48% from 2019 to 2021 on Verra, the world’s largest carbon-credit registry, according to a World Economic Forum report published Tuesday.
Some companies are shunning carbon credits because of a complex web of quality controls, varying definitions of carbon-credit quality, a lack of transparency and a risk of reputational damage, according to the World Economic Forum report.
The ICVCM’s Core Carbon Principles should soothe concerns about quality and create more confidence in the market, Chief Operating Officer William McDonnell said.
“Some of the regulatory and disclosure developments are referring to us and our work, which we think will also help to give buyers confidence that if they are buying CCP-labeled credits, that should stand them in good stead,” he said.
“Some of the regulatory and disclosure developments are referring to us and our work, which we think will also help to give buyers confidence that if they are buying CCP-labeled credits, that should stand them in good stead,” he said.
He expects that the final principles to be released in March won’t differ much from draft proposals released in July: The 10 overarching principles included demonstrating that projects wouldn’t have achieved climate benefits without the credits, guarding against double counting of the credits and getting third-party confirmation of their claims. However, there will likely be updates to how programs are assessed and the criteria they have to meet, he said.
Patchwork of standards
Other standards are coming too. At this year’s U.N. climate conference in Dubai, negotiators are expected to iron out details on how carbon credits can be used to help meet the 2015 Paris climate agreement, and how the voluntary and U.N. systems will interact.
The Energy Transition Accelerator also plans to use carbon credits to fund renewable-energy projects in the developing world. Backed by the U.S. State Department and launched by U.S. Special Presidential Envoy for Climate John Kerry, the Rockefeller Foundation and Bezos Earth Fund, the group says it aims to align its work with standards such as the ICVCM’s Core Carbon Principles.
Competing standards will continue to offer value based on buyer preferences, said Hannah Hauman, global head of carbon trading at commodities trader Trafigura Group Pte.
The ICVCM’s rules are “another reference point of best-in-class principles,” she said. “We are going to be living in a world of many different frameworks and we’ll see if there’s convergence to one over time.”
Trafigura has thousands of clients across 150 countries and will continue to trade non-CCP carbon credits, she said. Trafigura’s clients are already asking after credits that will meet the Paris Agreement’s standards, she said. So far they haven’t asked about buying credits expected to meet the new CCP standards, she added, though she expects that will likely change after the final standards come out.
“We are talking about a suite of products that will all be required for climate change and all require carbon pricing to be able to influence as solvers,” she said. “While there are many drivers of climate change, we will have as many products to combat.”
