Amid controversies and greenwashing accusations, the voluntary carbon markets could be witnessing a shift towards credibility and transparency, driven by new guidelines, changing corporate expectations, and emerging regulatory measures
Using the term Wild West to describe voluntary carbon markets has persisted for a while; yet, in the somewhat near future, it may no longer be accurate because of recent developments in efforts to restore much-needed credibility to the market and address changing expectations in how carbon credits are used by companies.
The majority of approaches to carbon offsets have earned a reputation as being fluff and not doing much to achieve net zero emissions around the world. according to experts at Oxford. Further, recent controversies around carbon projects and markets have not helped. Last year, a major carbon credit provider sold questionable carbon credits that resulted in phantom sales to the major multinational companies that were the buyers. This and other reports of other dubious practices have tainted the reputation of voluntary carbon markets in the minds of many.
Actions to restore of trust underway
That said, major efforts to restore trust in carbon removal projects and voluntary markets are underway. In fact, the Voluntary Carbon Markets Integrity Initiative (VCMI) released guidelines late last year aimed at establishing high-integrity pathways for companies to support stronger climate action while making progress toward their own net zero goals. In addition, expectations in how companies are using carbon credits in the achievement of their net zero targets might be changing as well. Some companies had been using carbon credits to make statements about their progress towards net zero without any efforts to actually remove carbon from their operations.
In the last few months, however, expectations could be shifting, in part because of increasing greenwashing accusations. Indeed, companies may be penalized reputationally by using the purchase of carbon credits to state that they are moving toward achieving net zero targets without making enough investment in the removal of GHGs from their own activities.
Additionally, companies increasingly are expected to report publicly the actions that they are taking to decarbonize. For example, Science-Based Targets initiative (SBTi) and the United Nations have highlighted that purchasing carbon credits is a value-add and can only be leveraged once a company has met its entity-level decarbonization targets. Moreover, Bain & Co. earlier this year committed to only using carbon credits to offset its emissions after its annual targets are achieved for net zero emissions using VCMI’s new claims code.
Growing trend of partnership could help
To help rebuild credibility in carbon credits, partnerships between suppliers and buyers is a growing trend. In fact, Weyerhaeuser, a 123-year-old sustainable forestry and wood products company, the largest private owner of timberlands in the United States, and supplier of carbon credits based on owned forestland in Maine, has committed to a high-integrity carbon market by only selling its credits to buyers that are dedicated to making a climate impact. “We want to do business with customers who value the role of high-quality, high-integrity credits,” said Alicia Robbins, the company’s vice president of portfolio analytics and business development, adding that the company looks for buyers that “already have strong net-zero targets with a plan to first reduce their emissions, and then second, mitigate their remaining emissions through the use of carbon credits.”
Major players in carbon markets are also seeing this trend with market experts observing how some companies are approaching carbon projects through collaboration. Companies, their vendors and suppliers, and other industry players are teaming up on carbon projects to ensure these investments in carbon removal are credible. Taking a more hands-on approach by engaging directly with owners of carbon projects also safeguards that these projects are aboveboard.
Market proponents praise these new developments, noting that buyers’ efforts to vet suppliers of carbon credits is a departure from the recent past in which the carbon markets were the primary entity responsible for checking the credibility of the project.
The need for rules and regulatory measures
While steps are being taken to rebuild a credible reputation, many still see the need for regulation to guide the market towards high-quality credits and offsetting strategies that uphold integrity. Unfortunately, the current global ecosystem remains non-standardized, noncentralized, and fragmented.
Stills, steps toward regulations are beginning to emerge. For example, the U.S. Commodity Futures Trading Commission put forward a proposal late last year with the aim of enhancing the standardization of derivative contracts based on voluntary carbon credits. This proposal is designed to promote transparency and liquidity in the market, ensure precise pricing, and uphold the integrity of the market. Likewise, a framework aimed at preventing greenwashing and restoring integrity to voluntary carbon markets has been put forward by the governments of the Netherlands, Belgium, Germany, France, Spain, Finland, and Austria. In addition, the International Organization of Securities Commissions launched a consultation period in December 2023 “to promote the integrity and orderly functioning of voluntary carbon markets.” And in late May, the US government moved to take the first step towards codifying high-integrity voluntary carbon markets with the introduction of these principles. The joint statement was signed by the secretaries of the U.S. Treasury and U.S. Energy departments.
With increasing efforts from companies, market initiatives, and government regulators to enhance the integrity, standardization, and transparency in voluntary carbon markets, there are signs that the Wild West days may be giving way to a more credible and impactful era for leveraging these markets to drive meaningful climate action and global progress towards net zero goals.
