The latest set of rules for what counts as an effective carbon project have just emerged, after a governance group spent two years at the drawing board and reviewed hundreds of thousands of public comments about how to improve projects to lock-in climate-wrecking emissions.
A 96-page document now sets out the key principles that the Integrity Council for the Voluntary Carbon Market (ICVCM) thinks will clean up a growing US$2 billion industry – though the operational details provided do not answer the stickiest of questions that stakeholders have been grappling with.
Businesses have been buying carbon credits representing emissions cuts from projects that, for instance, protect forests or build solar panels. But the market is now in a slump, with prices on major spot carbon exchange CBL dropping up to 43 per cent since the start of the year. Buyers have been spooked by both macroeconomic trends and news reports of forest credit overissuance. There are also allegations of projects that have harmed local communities.
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Central to the council’s effort is a list of 10 “Core Carbon Principles”, ranging from how carbon projects can actually cut emissions, what sort of information industry players should reveal and how the rights of local communities can be protected. Carbon credit certifiers – the likes of Verra and Gold Standard which scrutinise projects before offsets reach the market – can apply to get certified for meeting the principles.
The council’s work serves as a “global threshold standard for carbon credit quality” that can channel green finance to where it is most needed, its rulebook says. The hope is also that carbon credits that the ICVCM certify can sell at a premium to plug the market’s losing streak.
To be determined
However, some details have been left to future updates, the first of which is expected in 2025.
For example, the current rules do not say whether carbon credits can be used concurrently by companies for their corporate green commitments, and countries’ decarbonisation obligations under the global Paris Agreement climate treaty – a sticking point that has been debated for years.
Double-counting of carbon credits between businesses, which leads to the overstatement of climate benefits, has already been established as a big no-no in the industry. But the issue is compounded by the creation of country-level carbon trading under the Paris Agreement, under what is known as “Article 6”, which could also see governments joining in the trade.
“It is broadly understood that double counting must not occur where carbon credits are transferred internationally for use towards [countries’ climate contributions] under the Paris Agreement. This understanding is also reflected in Article 6 guidance agreed at [the COP26 climate conference] in 2021,” ICVCM said.
However, the council “considers that this issue remains open after [COP27, held last year] and needs further study”, it said.
Neither has the ICVCM decided if some profits from private-sector carbon trading must go towards a United Nations pool of climate adaptation money – as is mandated by transactions under the Paris Agreement. The current ICVCM rulebook allows for a special tag on carbon credits that do channel finance that way, though some had hoped the donation would be compulsory.
A work programme will be established to determine if the contribution should be made mandatory, ICVCM said.
Pedro Barata, an associate vice president at US-based non-profit Environmental Defense Fund, and co-chair of the ICVCM expert panel, told Eco-Business that public opinion was divided.
“We had views that this would be another tax on [climate] mitigation, and would have a negative impact on the contribution that the carbon market could [provide],” Barata said.
Such views were shared last year in a public consultation by Verra, a carbon offset certifier, who had said such provisions would be a “distraction and scope creep for ICVCM”, and suggested that climate adaptation should be integrated directly into carbon project design instead.
Barata added that some stakeholders also hinted that engaging with the United Nations fund would add bureaucracy.
He said others argued that the market should provide the finance on principle of social equity, since some countries which are not amenable to hosting carbon projects – for instance if they are already doing well at protecting forests – may still need money to protect themselves against climate risks.
“The [ICVCM] expert panel recommended the share of proceeds for adaptation, but the [ICVCM] board thought it was yet ready to impose that on carbon credit project developers,” Barata said, explaining how the special tag emerged as a workable solution for the time being.
The unanswered questions could lead to unhappiness from industry players that say they are already upholding higher standards. Gold Standard, another carbon offset certifier, said it was “disappointing” that the ICVCM rulebook is not fully aligned with the Paris Agreement.
“We don’t think there is anything to stop that from happening. We are already doing that,” said Gold Standard marketing and communications director Jamie Ballantyne during a media brief last week.
Finding middle ground
How far some of the ICVCM’s rules went also appears to have been moderated. The council is mandating that carbon crediting programmes reveal the end-buyer of carbon credits and how they are used, instead of just the middleman’s identity.
It does not go as far as some of the suggested options included in a draft release last summer for public consultation, which asked if project developers should report on revenue and how the money is used for climate mitigation or shared with local communities.
“The Integrity Council’s criteria include virtually nothing on raising the level of transparency of revenues from credit sales. This is highly problematic at a time when, as we uncovered in recent research, most intermediaries in the voluntary carbon market do not release information on their commission rates and markups,” said Belgium-based non-profit Carbon Market Watch in response to the ICVCM’s rulebook.
“While the new rules help enhance the quality of carbon credits, they do not close all loopholes of the voluntary carbon market,” said Carbon Market Watch lead on global carbon markets Gilles Dufrasne.
“More rules are needed and the credibility of the Integrity Council still hangs in the balance as several important criteria still need to be released,” Dufrasne said.
Barata said in analysing the hundreds of thousands of public comments, ICVCM had considered whether suggestions raised the integrity of the carbon market, without putting an undue burden on it.
“Many ideas were floated but we couldn’t find, for the time being, a proper approach to them,” he said, but added that he thought the council did tackle most of the key issues to improving market integrity.
Carbon credit certifiers had raised more concerns in the public consultation that ran from July to September last year. Both Verra and Architecture for REDD+ Transactions (ART) said what the ICVCM was attempting overlaps with the job scope of the certifiers themselves, and that the standards being proposed were too stringent.
A Verra spokesperson said it supports the ICVCM’s work and the organisation was reviewing the requirements that the council released. ART did not respond to requests for comment.
Barata said the council received “very positive feedback” from crediting programmes.
“The reality is that the programmes themselves have welcomed it, because they also realise that not everything is perfect in what they have done,” he said, adding that the ICVCM’s work is not competition but an additional layer of certification to highlight quality products.
Gold Standard said it intends to apply for the ICVCM’s certification, as did Singapore-based certifier Asia Carbon Institute. Applications open mid-year, around the same time as the ICVCM intends to publish specific rules for different categories of carbon offsetting projects.
Asia Carbon Institute founder John Lo said ICVCM’s work could add costs and complexity for project owners, especially those hailing from developing countries. Lo added that he hopes the council’s certification process will be “open and transparent”.