Summary:
High-quality carbon credits are being recognized by authoritative institutions, and large buyers such as L'Oréal, Nestle, Microsoft, McKinsey & Company, and Shell do not need to worry about so-called "greenwashing" allegations. A trillion-dollar voluntary carbon market is opening.
The Voluntary Carbon Market (CNM) is an indispensable green development mechanism in the process of the world moving towards "carbon neutrality".
In the global voluntary carbon market, the "carbon credits" that are traded are developed from different emission reduction methodologies, and all parties can flexibly participate in the trading according to their own needs. Purchased carbon credits can be used to offset the company's own unavoidable carbon emissions.
However, at the beginning of the global voluntary carbon market, due to the lack of government and regulatory intervention at that time, some companies (such as Verra, the world's largest carbon credit operator) aimed at the increasing demand for "carbon neutrality" and "carbon credits" in the market at that time, and spontaneously formed the current voluntary carbon market structure.
To a certain extent, this has also caused carbon credits to be repeatedly criticized due to many problems such as opaque information, double counting, over-issuance of credits, and exaggerated emission reduction. The purchase of carbon offsets is increasingly being linked to "greenwashing".
A number of carbon credit buyers, including L'Oréal, Nestle, Microsoft and McKinsey, have lost confidence, and oil giant Shell, which had favored carbon credits, has simply abandoned its $100 million carbon offset program.
It can be seen that the biggest problem of "carbon credit" is that there is not enough "credit".
However, the situation seems to be changing in recent months.
Some time ago, the Science Based Targets initiative (SBTi) announced that it was considering allowing companies to offset Scope 3 emissions using carbon credits.
Earlier this month, the Voluntary Carbon Market Integrity Committee (ICVCM) announced that Verra's Verified Carbon Standard (VCS) and REDD+ Trading Framework (ART) had received initial approval as carbon credit schemes in line with its Core Carbon Principles (CCP).
ICVCM is an international, not-for-profit, independent body dedicated to the development and maintenance of integrity standards in the global voluntary carbon market.
ICVCM President Annette Nazareth said at the COP28 sub-forum last year that only a high-integrity carbon credit market can help accelerate global action on carbon reduction. It now appears that the relevant efforts are being implemented gradually.
So far, the world's five largest carbon credit standards (in addition to VCS and ART, the other three are ACR, CAR and Gold Standard) have been recognized by ICVCM, and the market coverage of approved carbon credit standards has been expanded to 98%.
Pedro Barata, co-chair of the ICVCM panel of experts, said their endorsement could provide a compelling case for companies to invest in these "high-quality" carbon credits without fear of alleged "greenwashing" allegations.
After more than two years of continuous crackdown, carbon credits can finally take off the hat of "greenwashing", and a trillion-dollar voluntary carbon market space has been opened.
01
"Credit" carbon credits
Bloomberg has estimated that the voluntary carbon market could reach US$500 billion (about 3.6 trillion yuan) in the future, but according to Reuters, the current carbon offset market size is only about US$2 billion.
One of the biggest challenges to the failure of voluntary carbon markets is to ensure the quality of the supply of carbon credits. This includes ensuring the authenticity and effectiveness of emission reduction projects, as well as accurate measurement and reporting of emission reductions.
China's voluntary carbon market does not have much pressure in this regard, mainly because our methodologies are uniformly assessed and published by the Ministry of Ecology and Environment, and national standards are the only way to close.
However, there is no uniform definition of high-quality carbon credits in the global carbon market. Companies and emission reduction organizations can develop carbon credits by evaluating and publishing their own methodologies.
In addition, due to information asymmetry and opaque quality, it is difficult to guarantee that a project actually brings additional emission reductions.
The public distrust of carbon offsets caused by all of this has long been a shadow over the voluntary carbon market.
As a non-profit organization committed to strengthening the credibility of carbon market transactions, ICVCM officially released the Core Carbon Principles (CCP) in 2023, as well as the supporting assessment procedures and assessment framework.
Source: ICVCM
All carbon credit standards that pass the ICVCM assessment will first be listed as CCP-qualified carbon credit standards. Next, the ICVCM will also approve the methodology under the carbon credit standard.
If a carbon credit program is assessed as CCP eligible and has passed the methodology review, it will receive the "CCP" label issued by the ICVCM. ICVCM refers to its own assessment process as a "double-tick" approach.
Verra's Standard Validation Scheme (VCS) and REDD+ Transaction Architecture (ART) are currently recognized as CCP qualification schemes, and ICVCM will review the specific methodologies published for these standards in the coming days. In June, the Council is expected to publish the first batch of carbon credit methodologies to receive the "CCP" label.
Source: ICVCM
According to ICVCM, achieving the "CCP" label demonstrates that the carbon offset program is strictly compliant with CCP standards, including effective governance, transparency, continuous tracking, and strong independent third-party verification.
The ICVCM assures purchasers that obtaining carbon credits with the "CCP" label through the "double tick" method is "high integrity" and will indeed contribute to the implementation of net zero emissions.
According to the ICVCM, the CCP sets the first global benchmark for "high integrity" carbon credits. The ICVCM also calls on governments and regulators to incorporate the CCP as an international standard into their voluntary carbon market frameworks.
The UK intends to consult on the issue of the CCP standard and consider how it can be reflected in policy, regulation and guidance; The International Swaps & Derivatives Association (ISDA) has endorsed the CCP standard and the CCP label to provide a carbon credit quality benchmark for the voluntary carbon market (VCM); The Commodity Futures Trading Commission has published draft guidance on the listing of carbon credits on CCP labels.
02
The turn of carbon offsets
At present, the carbon credit schemes that have passed the preliminary approval of the ICVCM include the US Carbon Registration (ACR), the Climate Action Reserve (CAR), the Gold Standard (GS), the Verified Carbon Standard (VCS) and the REDD+ Trading Framework (ART). There are also several small carbon credit schemes in the pipeline.
Among them, VCS, GS, ACR and CAR are the four largest carbon credit issuances. VCS single-handedly accounted for 71.3% of the carbon credit issuance in the market. The five criteria that are currently assessed as CCP eligibility already cover 98%-99% of carbon credit issuance in the market.
来源：Climate Focus analysis of data collected for the VCM Dashboard, June 2023
Verra, the world's largest carbon credit operator, operates the VCS, and has done everything it can to meet the standards and requirements of the ICVCM and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), another important high-quality carbon offset filing.
According to the information disclosed on its official website, the latest version of the standard revision aims to address the issue of dual issuance, including:
Source: Verra's official website
In addition, there is one figure that cannot be ignored in the process of carbon offsetting returning to the forefront, and that is the Bezos Earth Fund (BEF), a strong supporter of carbon credits.
Like SBTi, behind the ICVCM stands the Bezos Earth Foundation. The reason why the SBTi has been able to loosen its attitude towards carbon offsetting is inseparable from the financial backer of the Bezos Earth Foundation.
The Bezos Earth Foundation, a fund established by the world's richest man and CEO of Amazon, has pledged to invest $10 billion by 2030 to combat climate change and protect nature.
At the same time, the Bezos Earth Foundation is one of the biggest supporters of the carbon offset market. BEF believes that a high-quality voluntary carbon market has the potential to reduce billions of tonnes of carbon emissions by 2050.
And, by continuing to fund climate organizations, the Bezos Earth Fund seeks to influence climate organizations' attitudes toward carbon credits.
The fund has provided $18 million in support to SBTi, a science-based targets organization, over the past three years.
Back in 2022, the Bezos Earth Foundation provided $11 million for two projects aimed at addressing the governance and quality of voluntary carbon markets, including supporting the ICVCM to establish and implement the aforementioned high-quality carbon credit standard, CCP.
It can be said that if the carbon offset market can turn around, the Bezos Earth Foundation must be one of the huge promoters.
03
Can the voluntary carbon market be revitalized?
However, although the VCS passed the initial review of the ICVCM, in the filing of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), the VCS only received conditional approval during the 2024-2026 (Phase 1) compliance period, but not fully approved.
CORSIA is a carbon offsetting and reduction scheme adopted by the International Civil Aviation Organization (ICAO) in 2016 and is an important component of the package of emissions reduction measures being implemented by the aviation industry.
The aviation industry is a major carbon emitter, but it is also a difficult carbon emitter. According to the International Air Transport Association (IATA), the first phase (2024-2026) and the second phase (2027-2035) of the CORSIA plan have a huge potential demand for carbon credits.
The total demand for the first phase is expected to be 0.6-160 million carbon credits, and the total demand for the second phase is 1 billion to 2 billion carbon credits.
Perhaps as the demand for carbon credits increases, more carbon credit standards will be able to become suppliers of carbon credits filed with CORSIA.
On the other hand, SBTi's research on the application of carbon offsets to Scope 3 has not been smooth.
According to a Reuters report on Thursday, after research, the SBTi's preliminary confidential draft showed that some or most of the carbon credits were largely ineffective in achieving emissions reductions.
However, a spokesperson for the SBTi also said that its study of carbon offsetting has not yet been completed, saying that the interim results at this stage are not necessarily correct.
From this point of view, the development of the global carbon market still has a long way to go.
Source: Global Zero Carbon