How Proposed New Standards Aim to Give Credibility to Multi-Billion Dollar Carbon Offset Market

The stakes are high in efforts by an independent body to inject a healthy dose of credibility into global carbon markets with the aim of turning them into a force against climate change.

Earlier this month, the Integrity Council for the Voluntary Carbon Market, or ICVCM, launched a 60-day public consultation for its draft Carbon Core Principles. These are the organization’s set of standards for ensuring the market has a steady supply of high-quality carbon credits and for determining which programs to generate them must be approved.

There is no doubt how difficult the overall problem is: the United Nations Environment Program has said annual greenhouse gas emissions will have to be cut almost in half to 32 billion tonnes by 2030 if there is any hope of restricting the average temperature rise by 2050 to 1.5°C above pre-industrial levels.

carbon offsets, where the credits flow from, they are not a panacea for achieving that, and not everyone is convinced of their effectiveness. Some environmentalists accuse the industry of using them as an excuse not to spend the necessary capital on technology to reduce greenhouse gases.

Yet the financial world sees the voluntary carbon market as a kind of ammunition in the battle to limit temperature rises, along with companies decarbonizing their operations. And for it to work, it needs to be structured in a way that builds trust for buyers and sellers. The trick will be to foster a market that is large, liquid, and reliable enough to attract large amounts of institutional money.

“Without a unifying standard, voluntary carbon markets would remain small and fragmented; it would be much more challenging to ensure the credibility of carbon credits,” Sonja Gibbs, a member of the ICVCM board of directors as well as director general and head of sustainable finance at the Washington-based Institute of International Finance, said in an email. .

“Credibility in the supply of carbon credits is essential to market construction and accurate pricing of credits.”

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ending the Carbon Basics is a big deal in the quest to direct tens of billions of dollars toward carbon sink and removal projects that could reduce up to 2 billion tons of emissions by 2030. One goal of the effort is to promote projects in countries Developing. world, where government-run or “enforcement” markets are rare and the need to protect natural areas is acute.

Over the next seven and a half years, carbon offset credit trading will need to jump to $50bn a year from about $1bn today to meet the targets, Mark Carney, former Governor of Canada’s Central Banks and England, he said. Mr. Carney, UN Special Envoy on Climate Action and Finance, led the working group whose work formed the basis for the creation of the ICVCM last year.

Voluntary carbon markets have been around for many years, but a combination of factors, including fragmentation, a lack of consistent standards, and concerns that buyers might be spending money, have prevented them from becoming a major force in carbon reduction. carbon dioxide emissions. on low-quality offsets or those that have been counted twice.

The council’s Carbon Core Principles include requirements such as additionality, or proof that a forest or other carbon sinkfor example, it would have disappeared without the investment backing the credits, as well as confirmation that greenhouse gas reductions from a project are only counted once.

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In addition, the accreditation program must include effective governance to ensure the transparency and quality of the credits offered, and a registry must exist to record and track both emission reduction activities and credits so that they can be identified in an accurate manner. safe. Offsets will require quantification of carbon removal using scientific methods and must receive third-party verification.

On the registry front, a consortium of global banks, including institutions such as the Canadian Imperial Bank of Commerce, National Bank of Australia, UBS, and Standard Chartered, have launched a blockchain-based system for recording and tracking transactions. The company, called Carbonplace, will act as a transaction network for voluntary markets, almost like a carbon version of the SWIFT payment system in international finance.

Of course, companies will have to go beyond offsets to achieve what is necessary to meet climate goals. In an effort to prevent greenwashing, another group, the Voluntary Carbon Markets Integrity Initiative, has published a code that holds corporations accountable for showing they are prioritizing reducing their own industrial emissions before offsetting. what they cannot reduce.

However, many industries will need time and large investments in technology to achieve what it takes to remove greenhouse gases from their own operations, so voluntary carbon markets will be a “vital component” in the race to make the necessary cuts in emissions, said Ms. Gibbs said.

In the meantime, an effective market will help set a global price for carbon, while also helping to provide funding for the technology that will be required to achieve the ultimate goal of decarbonization.

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