Group's Proposed Rules Aim to Build Trust in Carbon-Credit Market

"A group seeking to improve the quality of carbon offsets published draft standards that are expected to shape this fast-evolving market, but many important details won't be decided for months.

The Integrity Council for the Voluntary Carbon Market, which includes climate experts and representatives of carbon-credit-market participants, nonprofits and indigenous groups, on Wednesday published a set of standards for carbon credits and a draft framework for applying them. The aim is twofold: to build trust in the market for emissions-offset credits, which has come under criticism because of projects that don't deliver the promised climate benefits, and to channel more money to projects that do have an impact.

The draft lays out 10 Core Carbon Principles that carbon projects, and the credit registries enabling them to sell offsets, should follow to get the "CCP-compliant" endorsement. Among other things, they would require projects to show that the climate benefits they achieve wouldn't have happened without the carbon credits; quantify the climate benefits; guard against double-counting of credits; get third-party validation of their claims; and detail other potential social or environmental side-benefits.

Many carbon-market participants say they do those things, but the ICVCM's proposals go into more detail and aim to make it easier to compare various types of credits. Credits cover diverse activities, ranging from forest protection to renewable energy, and are issued by carbon-credit registries, such as nonprofit groups Gold Standard and Verra, that don't have uniform standards.

The ICVCM has its origins in 2020 when the Institute of International Finance, a global association for the financial industry, convened a group with the aim of scaling up the voluntary carbon-credit market. That group set up the ICVCM as its governance body last year. It is one of several groups seeking to bring order to the market. For example, the Voluntary Carbon Markets Integrity Initiative is considering how companies should count credits toward their emissions goals.

The ICVCM won't scrutinize individual climate projects. Instead, under its rules, credits will be grouped into categories, based on factors such as the project type and the registry involved. Those categories will show, for example, whether projects aim to cut emissions, such as by setting up a wind farm that reduces coal use, or to remove carbon dioxide from the atmosphere through tree-planting or some other means.

Once the ICVCM finalizes its rules, it will assess whether different categories of projects are eligible for the CCP seal of approval.

Anton Root, head of research at AlliedOffsets, a carbon-credit database run by London-based data and technology firm AlliedCrowds, said he was pleased by the ICVCM's focus on quality in its draft.

"That means facing the uncomfortable truth that some projects don't meet the standards they should, and that certain companies are buying credits that aren't having any meaningful impact on the environment," Mr. Root said.

The voluntary carbon-credits market almost quadrupled to nearly $2 billion in value in 2021 from around $520 million in 2020, according to data from Ecosystem Marketplace, although prices took a hit in the first half of this year.

Annette Nazareth, a former U.S. Securities and Exchange Commission commissioner who chairs the ICVCM, said the rules could aid the development of futures contracts based on different kinds of credits, and could underpin new rules from financial regulators such as the U.S. Commodity Futures Trading Commission.

But the final shape of the rules, which the ICVCM aims to publish late this year, isn't clear. Many parts of the framework list policy options that may be adopted, depending on the feedback the ICVCM receives in a two-month consultation period. For example, one option would require some money from the sale of carbon credits to be set aside to fund climate-change adaptation." [1]

1. Banking & Finance: Group's Proposed Rules Aim to Build Trust in Carbon-Credit Market
Ballard, Ed; Dieter, Holger. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 29 July 2022: B.10.