According to one account reported in the Financial Times, the first project to claim to offset carbon dioxide emissions resulted from a chief executive officer’s concern about emissions from a yet-to-be constructed coal-fired energy plant in 1987. A colleague proposed to offset the projected emissions by planting 19 million trees in Guatemala over a 40-year period. The FT does not report if the offset project was financially sustained and monitored over the 40-year period. However, it does report that the offset project was estimated to cost just pennies per metric tonne of emissions. From that one project and others like it came two different frameworks for offsetting, one a compliance market with mandatory requirements overseen by governments and the other a voluntary market without government mandates or oversight.
In August 2021, the United Nations Secretary General Antonio Guterres characterized a just-released Intergovernmental Panel on Climate Change (IPCC) report as a “code red for humanity.” Since then planet warming emissions have continued to rise, reaching a record high monthly mean average in May. Intuitively, it may seem absurd to remedy a planetary emergency with voluntary means, e.g., voluntary carbon markets (VCMs). However, according to a recent Reuters investigation, many government classified “climate finance” projects also have no or slight relationship to climate action. As a result, the developing country hosts of emissions offset projects may see VCMs as a more reliable, however inadequate, form of climate finance.
Voluntary carbon credit certification programs emerged about 15 years ago to apply some rules to offset project developers registered by the programs to improve the quality of offset credits issued for purchase. However, in 2022, the buyers’ market for voluntary carbon credits (VCC) remained stagnant. According to the lead author of Bloomberg NEF’s “Long Term Carbon Market Outlook,”
Today’s offset market, built mostly on bilateral transactions for cheap credits, is potentially digging its own grave . . . Buyers need transparency, clear definitions around quality and easy access to premium supply, or future years will resemble what we saw in 2022. These changes will send demand signals to the projects making the greatest decarbonization impact and in need of the most investment.
One cause of the grave digging is that the buyers are holding cheap credits that often misrepresent offset project emissions reduced or avoided despite the rules and oversight of the VCC certification programs. The buyers suffer reputational and litigation risk for claiming that they are offsetting part or most of their emissions through buying these credits. The Bloomberg NEF author points to changes in certification program rules that will increase the quality and amount of both VCC credits issued for sale and to offset project developers.
On March 29, the Integrity Council for the Voluntary Carbon Market (ICVCM) released Part I of the rules and procedures that are tantamount to the changes to carbon credit certification programs asked for in the Bloomberg NEF study. IATP’s analysis of Part I is not comprehensive. Rather, we describe how a few ICVCM requirements are organized under the Core Carbon Principles, the Assessment Framework laying out carbon certification requirements and the Assessment Procedure used to evaluate certification program compliance with the requirements and to monitor ongoing compliance. Programs that comply may have certain categories of their credits labeled “CCP,” which indicates to prospective buyers that these credits have higher environmental and social integrity than those without the CCP label.
For example, the requirements under the “Sustainable Development Benefits and Safeguards” CCP requires offset project developers to protect the human and land rights of those living in the offset project area. If such protection is not “feasible”, e.g., because the host country government does not enforce human and land rights, then the offset project design documents must notify prospective buyers that the project may or is likely to result in the “forced physical or economic displacement” of local communities and/or Indigenous Peoples living in the project area. In the ICVCM Foreword, there is a legal Disclaimer (p.3) that advises “Buyer Beware” to anyone using current or future ICVCM documents.
Our analysis anticipates some difficulties for certification programs to implement the Part I requirements. However, the placeholders for Part II requirements may prove yet more challenging to implement. Part II concerns the “Emissions Impacts” of categories of offset credits, including the “robust quantification” of land-based emissions temporarily stored but subject to reversal, e.g., by forest fires, and the long duration storage of emissions resulting from “engineering-based solutions,” e.g., Carbon Capture and Storage facilities and pipelines that have not operated successfully on a commercial basis. Because ICVCM states that its rules will be based on the “best available science and expertise,” its requirements for carbon accounting and crediting methodologies will have to follow the climate science that shows emissions emitted are not offset by emissions removed on a one-to-one ratio. In contractual VCM terms, certification programs must not claim that a tonne of a buyer’s emissions is offset by a tonne of emissions removed from the atmosphere. However, a scientifically sound contract whose purchase does not allow the buyer to make “net zero” emissions claims may not find a lot of buyers.
Some ICVCM rules will improve the environmental integrity of some categories of offset credits. For example, the rules do not allow CCP labels for credits derived from emissions avoidance projects, e.g., deforestation avoidance, which are prone to greatly over-estimating emissions avoided. However, VCMs, lacking mandatory emissions caps or other environmental policy levers, have not been able to demonstrate that they reduce emissions since VCMs under the United Nations Framework Convention on Climate Change’s Kyoto Protocol, launched in 1997, failed to do so.
ICVCM is scheduled to release its Part II requirements later this year. IATP will be interested in the context of the requirements, the uptake of the requirements by certification programs and whether buyers scale up VCM trading in response to the ICVCM requirements for “high integrity” offset credits. Even if VCM trading does scale up to help buyers make “net zero” claims for their emissions, the promise of the oil and gas industry to increase their production and emissions likely will overwhelm any temporary or long duration storage of emissions under ICVCM rules.
Download a PDF of our analysis, "Can self-regulation scale up carbon market trading and reduce emissions?"
