Enhancing the Credibility of the Market
COMPETING APPROACHES UNDERMINE MARKET CREDIBILIT
As described earlier in this course, the Voluntary Carbon Market (VCM) provides the opportunity to finance carbon reduction and/or removals projects that otherwise would not be funded through other market mechanism. To support this endeavour, standard setting bodies such as the Gold Standard Foundation, VCS, CAR, ACR, and many others, have provided rules and guidance on how to operate in the VCM.
Standard bodies represent fragmented and sometimes competing approaches that need to evolve to facilitate the rapid scale up of the market.
In this topic:
We will explore how the “Integrity Council for the Voluntary Carbon Market” (ICVCM) developed a universal framework to bring clarity and alignment across standards and ensure the integrity of the credits being produced and traded. Then, we will investigate how companies can support and use carbon credits with “high integrity” to make their climate mitigation claims. Finally, we will look at a tool developed by the Carbon Credit Quality Initiative to help stakeholders assess the quality of carbon credits and take measures to improve the design/execution of projects with “high credits”.
INTEGRITY COUNCIL FOR THE VOLUNTARY CARBON MARKET
The Integrity Council for the Voluntary Carbon Market (IC VCM) published its Core Carbon Principles (CCP) to:
- Build trust in the market.
- Unlock additional investment.
- Help deliver real climate impact.
These principles are grouped into three (3) main categories:
- Governance: effective governance, tracking, transparency, robust independent third-party validation and verification.
- Emissions Impact: additionality, permanence, robust quantification of emission reductions and removals, no double counting.
- Sustainable Development: sustainable development benefits and safeguards, contribution toward net zero transition.
In addition, the IC-VCM has created an assessment framework that will be applied across all relevant market participants for:
Program-level Assessment (carbon-crediting programs);
- Any standard-setting program that registers mitigation activities and issues carbon credits (i.e., The Gold Standard, VCS, etc.).
- It may include CORSIA approved programs. These will have a fast-track assessment process.
- A positive assessment results in the denomination of a CCP-Eligible Program.
Category Assessment (categories of carbon credits).
- A group of carbon credits that share common characteristics:
- Same type of mitigation activity;
- Registered under same the same crediting program and complementary standard.
- Quantified under the same active methodology.
- Other common features like geographical location or technical features.
- A positive assessment results in the denomination of a CCP-Approved for issued credits.
The assessment process has started and will take a few months to provide the corresponding CCP-Approved carbon credits.
VOLUNTARY CARBON MARKETS INTEGRITY INITIATIVE
Market integrity is necessary to unlock private sector capital to scale Voluntary Carbon Markets. In close collaboration with the Integrity Council, the Voluntary Carbon Markets Integrity Initiative (VCMI) works towards providing guidance on how to use the VCM as part of a “credible, science-aligned net-zero decarbonization pathway” for companies and countries.
The lack of clarity in the meaning of claims and commitments as well as the lack of transparency in corporate climate performance can undermine the investment on VCM (VCMI 2023).
There is a need to bridge the information asymmetry between the supply- and the demand-side of carbon markets. This will ensure high integrity of the market through transparent communication in the use of carbon credits in climate change mitigation strategies.
To solve for this problem, the Voluntary Carbon Markets Integrity (VCMI) Initiative’s Claims Code of Practice was published in June 2023.
“The Voluntary Carbon Markets Integrity (VCMI) Initiative is a multi-stakeholder platform to drive credible, net-zero aligned participation in voluntary carbon markets (VCMs).”
An important contribution from the VCMI Initiative is the [provisional] Claims Code of Practice.
This document proposes 4 steps for making credible claims:
1. Comply with the Foundational Criteria
2. Select VMCI Claim(s) to make
As mentioned before, carbon credits can be used and retired to make climate contributions in number equal to a pre-determined % of “remaining emissions in VCMI claim year”.
The VCMI has propose three tiers: platinum, gold, and silver, depending on the % of emissions to be offset as show in Figure x.
The VCMI claim system requires to increase the % coverage of emissions in relation to the previous reporting year. Thus, promoting the increase in commitment to cover unabated emissions.
3. Meet the required carbon credit use and quality thresholds.
- Carbon credits underpinning VCMI Claims cannot be counted towards meeting decarbonization targets. They use of carbon credits represent a climate contribution.
- Both reductions and removals credits are eligible to make VCMI claims.
The assessment of the quality of carbon credits should follow the Core Carbon Principles recently published by the IC-VCM until
- Companies shall purchase and retire “Core Carbon Principles (CCP) Approved” credits.
- “Companies shall publicly disclose the types, sources, quantities and other relevant details regarding the carbon credits purchased and retired”
4. Obtain third-party assurance following VCMI Monitoring, Reporting, and Assurance (MRA) Framework.
Reporting shall be made publicly available to stakeholders as a standalone report or within a more comprehensive report (i.e., sustainability report).
VCMI Claims Annex F includes a list of metrics that shall be included in the report.
The third-party assurance should be performed in line with the following standards:
- International Standard on Assurance Engagements (ISAE)
- American Institute of Certified Public Accountants (AICPA) attestation standards
- International Organization of Securities Commissions (IOSCO) standards
VCMI MRA Framework to be publish in November 2023.
HOW TO ENSURE THE QUALITY OF CARBON CREDITS
Another option to evaluate the quality of carbon credits is through the assessment methodology developed by the Credit Quality Initiative (EDF Ökö-Institut 2022). This methodology includes 7 key areas:
- Robust determination of the GHG emission impact
- Avoiding double counting
- Addressing non-permanence
- Facilitating transition towards net zero emissions
- Strong institutional arrangements and processes
- Environmental and social impacts
- Host country ambition
You can explore the Carbon Credit Quality tool following this link: https://carboncreditquality.org/scores.html