Carbon offsetting has never been more popular. Amid growing calls for businesses to decarbonise, firms paid US$2 billion last year – quadruple the amount of that in 2020, on carbon credits representing emissions cuts from projects that, for instance, protected forests or built solar panels.
But as it stands, the market is rife with allegations of redundant or counterproductive projects, as well as those that have done harm to local communities.
Now, the Integrity Council for the Voluntary Carbon Market (ICVCM), a coalition of hundreds of climate and finance experts worldwide set up in March 2022, is trying to solve the issue by setting standards for existing vetters of carbon projects. It released its draft plans late last month.
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It is the latest attempt by industry groups to discipline the voluntary offsets market, a global corporate venture that could play a key role in fighting climate change – if done right – by allowing firms finding it hard to cut their own greenhouse emissions to pay for carbon-cutting projects elsewhere.
Analysts and industry participants said the initiative is ambitious in the ground trying to cover, but the main hurdle will come when translating principles into action in an unregulated market employing a huge variety of decarbonisation methods.
The ICVCM is proposing a set of 10 “Core Carbon Principles”, which includes ensuring carbon offsetting projects deliver actual emissions cuts, stay for the long run, do good bookkeeping and care for local communities.
The proposed principles address “probably all of the important dimensions” of ensuring the quality of carbon credits, said Gilles Dufrasne, a policy officer at Belgian non-profit Carbon Market Watch.
Some of its criteria also go beyond what existing carbon project vetters call for, added Dufrasne, who also sits on ICVCM’s expert panel.
For example, in the most stringent standard proposed, projects will need to deliver emissions reductions that go beyond what their host countries already pledged through their submissions to the global climate treaty Paris Agreement. Such a requirement would come after an initial period of laxer rules, although the exact time frame has not been laid down.
Project registries may also need to disclose the identity of entities buying carbon credits under the ICVCM proposal, something rarely enforced today, according to Dufrasne.
This is not a black and white system, it is shades of uncertainty
Gilles Dufrasne, policy officer, Carbon Market Watch.
But the multitude of ways to reduce, avoid or absorb emissions, each with their own limitations, present a huge challenge to defining what a good carbon project is.
For example, nature-based solutions have been hailed as some of the most promising options this decade by the Intergovernmental Panel for Climate Change, but forests increasingly face wildfires that return all the stored carbon back into the air.
Biomass energy carbon capture and storage, or BECCS, promises to return emissions from burning crops for energy back to the earth, but the nascent technology will require huge amounts of water, and monocultures could harm local biodiversity.
“Ultimately, this is not a black and white system, it is shades of uncertainty,” Dufrasne said.
Flexibility and practicality
Meanwhile, market players are looking at how much manoeuvring room they will be given.
“The way in which the principles are implemented is critical,” said Mikkel Larsen, chief executive of Singapore-based carbon marketplace Climate Impact X, adding that ICVCM “must balance the need for integrity with being practical to encourage adoption and market development”.
“There is no rule fitting all contexts and all countries,” said Robert Bürmann, chief executive of forest projects start-up Fairventures Social Forestry, who echoed the call for flexibility.
The exercise must allow for a “diverse range of valid and practicable methods”, said Andrew Howard, senior director of climate policy and strategy at US-based carbon credit registry Verra, but declining to discuss concerns on any specific method. Verra manages the “Verified Carbon Standard”, a widely-used standard for carbon offsetting projects.
“If the Core Carbon Principles can strike the balance of being both ambitious and practicable, we certainly will see ourselves working with it,” Howard said, adding that Verra would be making a submission to the ICVCM’s consultation.
Gold Standard, a competing certification programme, also said it was still too early to fully understand the implications of ICVCM’s proposals, and that it would engage in the consultation process, in response to queries.
On its part, ICVCM has left several details of its proposals open to feedback, such as the stringency of its assessment criteria and the way it evaluates the permanence of projects’ benefits.
It deferred judgement on whether countries and firms can use the same offsetting project in tabulating emissions cuts – a grey area in the fight against double-counting carbon credentials. A concurrent initiative looking into how carbon credits should be responsibly used, the Voluntary Carbon Markets Integrity Initiative, has said it will look deeper into the issue in the future.
Not everyone fully agrees on the scope of ICVCM’s work. Howard said Verra had some “hesitancy” on a question of whether some proceeds from carbon projects should go into a climate adaptation fund to help vulnerable countries.
“Adaptation finance is of course hugely important but there may be other ways to get projects to contribute to adaptation efforts,” he said.
ICVCM chief operating officer William McDonnell said in a briefing call earlier this month that the council will take a “balanced approach” to feedback received, in response to a question on how it is defending against plans being watered down through the public consultation.
“The consultation is overseen by our colleagues at the British Standards Institute, who have over a hundred years of experience of overseeing these things in a balanced way,” he said.
There are also groups calling for stronger safeguards – such as for communities living at project sites.
Regan Pairojmahakij, senior programme officer at Thailand-based non-profit Regional Community Forestry Training Center for Asia and the Pacific (RECOFTC), said that the requirement for projects to obtain free, prior and informed consent from local groups should not be applied only “when relevant”, as stated in the current drafts, but across the board.
The right for communities to withdraw consent afterwards should be made more explicit in ICVCM’s wording, and the council could also consider highlighting projects which empower local communities and Indigenous peoples, Pairojmahakij added. Current proposals are for attributes like having climate adaptation co-benefits and contributions to sustainable development goals highlighted via “tags”.
“Ninety percent of potential nature-based solutions are in the global south. It is hard to conceive of any forests at risk of deforestation which do not have a local community element – if not within the forested area, then in surrounding areas,” Pairojmahakij said.
“Fair and credible carbon markets can potentially provide, if done well, transformative outcomes for Indigenous Peoples and local communities,” she added.
The ICVCM is keeping the consultation open till the end of September, and intends to finalise its drafts by the end of the year. It estimates that certifying each carbon offset programme will take four to six months. It is currently operating on funds from donors, such as the UK government and tech giant Google’s philanthropic arm, but may charge fees in the future.
Greater recognition, regulation needed
The ICVCM said that its work would help identify and channel money into quality carbon projects, addressing the concern that projects charging more for better monitoring and verification vie for customers with those offering cheaper, less stringent credits.
Pairojmahakij agreed that the greater scrutiny offered by ICVCM’s work would shrivel demand for low-quality projects. Bürmann from Fairventures Social Forestry added that he hopes the initiative will help project developers receive “premium prices” on high quality offsets.
But he added that the initiative needs to be recognised internationally to be effective, such as by being adopted by the United Nations Climate Change Conference, a global climate meet that has spawned landmark treaties such as the Paris Agreement. The next conference, COP27, is to be held in November.
As it stands, ICVCM trying to set a higher bar for certified carbon projects will not solve the problem of companies going for uncertified ones, Dufrasne from Carbon Market Watch said. A University College London study last year found that there were hundreds of millions of tonnes of low quality credits in the market.
Carbon offsets should remain a last-resort solution, while their markets should gravitate towards being regulated to be effective, Dufrasne said, adding that governments need to step-up in mandating for actual emission cuts from their industrial sectors.
An oversized focus on voluntary carbon schemes may not help.
“Often this leads to less climate action because these companies are taking voluntary action that is perhaps less stringent than what governments might impose on them,” he said.