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Voluntary carbon markets: a force for good?
September 25, 2024
Voluntary carbon markets: a force for good?
The voluntary carbon market (VCM) has been heralded as a vital tool in the transition to net-zero. Yet high profile investigations into carbon credits have uncovered a host of issues, leading to accusations of greenwashing and growing mistrust. With a range of initiatives being introduced to monitor quality more rigorously, can the VCM become a force for good?
What is the voluntary carbon market?
The VCM is a decentralised market where corporates, organisations and individuals can buy and sell carbon credits. Its aim is to enable high emitters to offset unavoidable emissions while pumping much-needed capital into projects that aim to remove or reduce the amount of greenhouse gases (GHG) in the atmosphere.
In theory, this should lead to a meaningful net reduction in emissions. However, as it stands, the market is largely unregulated, which has enabled bad actors to proliferate. This has led to growing doubts about whether the VCM is serving its intended role.
The problem with the VCM
A key criticism of the VCM is that credits being sold on the market are not actually yielding meaningful environmental gains. A carbon credit should represent one tonne of carbon dioxide removed or avoided and proceeds from the sale of credits should be used to fund projects that do not benefit from government support. However, a lack of transparency and guidance has meant that this is not always the case.
In 2023, the Guardian, Die Zeit and SourceMaterial published a damning report following an in-depth investigation into projects that had been approved by one of the industry’s top certifiers, Verra. It found that more than 90% of its rainforest offset credits – which are among the most commonly used by corporates – did not represent genuine carbon reductions. While Verra denied these claims, the report shone a light on the inconsistencies in the quality of credits being sold on the VCM.
And it doesn’t end there. Investors in the VCM have been accused of using it as a “license to pollute” – relying on the purchase of offset credits to reduce their net emissions instead of making meaningful changes to their processes.
Is it all bad?
To date, the VCM’s journey has been far from straightforward. Yet when used correctly, it has the potential to yield significant gains for the transition to net-zero.
Importantly, it can serve as a useful tool in the decarbonisation strategies of companies operating in hard-to-abate sectors. The metals industry, for instance, contributes significantly to global economies and is central to developing the infrastructure needed to carry out the energy transition. However, it is one of the largest emitters globally and low-carbon alternatives to fossil fuels are not yet viable at scale. While existing solutions – such as process changes, recycling and reproduction – are helping to bring down emissions, investing in carbon offsets can help increase the speed at which companies decarbonise.
In addition, the VCM can help advance global sustainable development and has the potential to play an important role in closing the climate finance gap. This is particularly important in developing economies that are disproportionately impacted by climate change and less likely to have access to public funding initiatives.
Issues may be surmountable
The VCM certainly has work to do if it is to improve its reputation, but change is underway. The Integrity Council for the Voluntary Carbon Market (ICVCM), for instance, launched the Core Carbon Principles (CCPs) in March 2023, setting a global threshold for quality in the VCM and promoting greater transparency.
In addition, carbon credit ratings providers, such as Sylvera, offer in-depth analysis into the quality of projects – assessing risks such as additionality and permanence, and providing a score based on how likely projects are to fulfil their claims. These scores also have a direct impact on the price of credits and can help channel investment into higher-quality projects.
The future of the VCM will be contingent on the impact such initiatives have on increasing quality and restoring confidence. Investors will also need to demonstrate that they are making a concerted effort to reduce emissions from their own processes alongside investing in carbon credits. But with decarbonisation targets looming, and increasing urgency to mitigate the impacts of climate change, the VCM could yet become an important piece of the transition puzzle.
Find out more about the sustainability and ESG marketing services of FINN Partners.
A version of this blog first appeared on Medium: Purpose and Social Impact
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