Overpromising and under delivery of carbon offsets have underpinned the 20 year-long debate: can the voluntary carbon market tangibly contribute to net zero? Seeking to establish a global benchmark, the Integrity Council for the Voluntary Carbon Market (IC-VCM) issued draft Core Carbon Principles [ref 1] for a public consultation run on its behalf by the British Standards Institute. The outcome is due to be published by Dec 2022.
The IC-VCM is an independent governance body stemming from the Taskforce on Scaling Voluntary Carbon Markets (TSVCM), initiated by the UN Special Envoy for Climate Action and Finance: Mark Carney. The IC-VCM formulated 10 key criteria to ensure that carbon offsets and carbon-crediting programs have a “tangible, science-based and verifiable impact.” An accompanying Assessment Framework expands on the key criteria, whereas the Assessment Procedure outlines the process for approving crediting programs.
Defining the Core Carbon Principles (CCPs)
“For identifying high-quality carbon credits” is the mantra of the framework, aiming to set a threshold for credits and crediting programs to meet. The CCPs are also informed by a litany of global frameworks and bodies: the Paris Agreement, IPCC, Cancun Safeguards, CORSIA, ICAO, Calyx Global and the Carbon Credit Quality Initiative. Ultimately, the IC-VCM wants CCPs to foster trust within the market, and in turn, accelerate liquidity, scalability, and transparent price signals – all for better price and risk management to promote investment in carbon removal and reduction projects.
Transparency is one of the defining ways in which the IC-VCM aims to promote quality, notably through carbon credit attribute standardisation. This ‘tagging’ system will identify four overarching, though not mutually exclusive, attributes:
- Type of mitigation outcome (reduction or removal) with scope for further tagging (i.e, nature-based, technological removal)
- Host country authorisation in accordance with Article 6
- Sustainable Development Goal Impact
- Adaptation co-benefits
So far, the Assessment Framework applies to carbon removal credits. However, ICVCM will be exploring how to best incorporate avoidance credits, such as REDD+, into the Assessment Framework.
The 10 CCP key criteria
“Greenhouse gas reductions or removals from the mitigation activity shall be additional, i.e., they would not have occurred in the absence of the incentive created by carbon credit revenues.”
- If the activity is identified to be economically viable without carbon credit revenue, barrier analysis will then determine if other factors are preventing the project’s implementation.
- Common practice analysis – examining whether a mitigation activity is additional if the activity is uncommon within the host jurisdiction – will also filter out common activities from eligibility.
- Mitigation Activity Information
“The carbon-crediting program shall provide comprehensive and transparent information on all credited mitigation activities. The information shall be publicly available in electronic format, and scrutiny of mitigation activities shall be accessible to non-specialised audiences”
- Overall, the information will provide access to the decisions and analyses behind additionality assessment, quantification of emissions reductions or removals, as well as social and environmental impacts
- No Double Counting
“The GHG emissions reductions or removals from the mitigation activity shall not be double counted. i.e., they shall be counted once towards achieving mitigation targets or goals. Double counting covers double issuance, double claiming, and double use.”
- Double use – two companies retire the same carbon credit
- Double registration – the same emission reduction is credited under two separate programs
- Double claiming – two companies/countries “claim the same emission reduction towards climate goals or Nationally Determined Commitments “ under the Paris Agreement
Prior to consultation, the IC-VCM have not taken a position on whether a corresponding adjustment under Article 6 should be enacted when credits are internationally transferred.
“The GHG emissions reductions or removals from the mitigation activity shall be permanent, or if they have a risk of reversal, any reversals shall be fully compensated.”
- Human or nature-induced risks are inherent and vary to many mitigation activities which preserve or enhance the storage of carbon
- Approaches that address non-permanence without the replacement of credits of compensation will not be CCP eligible
- Equally, the ICVCM recognises the unfeasibility of compensation in perpetuity and suggests the following to incorporate a realistic compensatory system:
- Any compensation guarantee duration needs to exceed a minimum threshold (yet to be stipulated by ICVCM)
- Temporary crediting: “to ‘price in’ the carrying cost of maintaining carbon storage by establishing an ongoing required rental payment”
- “Internalise the carrying cost upfront through long-term maintenance obligations and insurance mechanisms.”
- Given the varying risk of non-permanence across different mitigation activities, the ICVCM has proposed three different permanence pathways depicted below:
(Source: Public Consultation Final Compendium, ICVCM)
Alternatively, approaches which claim permanently valid credits will be scrutinised from three angles:
- “Duration of commitment to monitor and compensate for emission reversals”
- “Strength of mechanisms and incentives to compensate for reversals”
- Institutional Stability
- Program Governance
“The carbon-crediting program shall have effective program governance to ensure transparency, accountability and the overall quality of carbon credits.”
“The carbon-crediting program shall operate or make use of a registry to uniquely identify, record and track mitigation activities and carbon credits issued to ensure credits can be identified securely and unambiguously”
- The IT registry system will also implement accounting rules to avoid all forms of double counting
- Robust Independent Third-Party Validation and Verification
“The carbon-crediting program shall have program-level requirements for robust independent third-party validation and verification of mitigation activities”
- Verification and Validation Bodies (VVB) will need to secure accreditation via a system under the UNFCC or through an International Accreditation Forum member
- Programs must validate and verify each mitigation activity, as well as have oversight procedures assess VVB auditing, reporting and systematic performance
- Robust Quantification of Emissions Reductions and Removals
“The GHG emission reductions or removals from the mitigation activity shall be robustly quantified, based on conservative approaches, completeness and sound scientific methods.”
- Ex-post crediting, where the mitigation activity has taken place, can be accurately quantified and verified by a VVB
- Sustainable Development Impact and Safeguards
“The carbon-crediting program shall have clear guidance, tools and compliance procedures to ensure mitigation activities conform with or go beyond widely established best industry practices on social and environmental safeguards while delivering on net positive sustainable development impacts.”
- Carbon crediting programs will be required to manage environmental, economic and social risk and impacts throughout the mitigation activity’s life cycle including:
- Labour and working conditions
- Resource efficiency and pollution prevention
- Land acquisition and involuntary resettlement
- Biodiversity conservation and sustainable management of living natural resources
- Indigenous People, Local Communities and cultural heritage (IPLC)
- Gender equality
- The mitigation activity should, where possible, utilise national/local frameworks and tools and be consistent with the SDG priorities of the host party
- Among the recommended frameworks for assessment are the Forest Carbon Partnership Facility, The BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISFL)
- Transition Towards Net-Zero Emissions
“The mitigation activity shall avoid locking in levels of emissions, technologies or carbon-intensive practices that are incompatible with achieving net zero emissions by mid-century.”
- Even if a mitigation activity leads to short-term emission reductions, it should be discouraged if it would result in locked-in increase in long-term emissions.
Following the outcome of consultation, it is expected that carbon crediting programmes can start to be assessed by the IC-VCM in Q1 2023, with the assessment process estimated to take between four to six months.
Concern has been raised over the feasibility of the requirements, with Verra – a globally renowned standard – criticising CCP’s stringency as “satisfy[ing] purists but do[ing] nothing to drive investment at the scale need.” Instead, Verra suggested that the “[CCPs] must build on current programmes and initiatives, rather than sweep[ing] aside past judgement or assume that the IC-VCM’s assessments are superior to those honed over many years by… third parties who have spent considerable time and resources.” [ref 2]
And yet, are existing global leaders in the voluntary market to be wholly trusted?
The Grantham Institute last year discovered that the world’s largest carbon offset programme, the Clean Development Mechanism, had approved 1,350 wind farms in India, of which 52% of the offsets would very likely have been built anyway. (3) Authors of the study then calculated that “the programme may have increased global carbon dioxide emissions by 6.1 billion tonnes, equivalent to running 20 one-gigawatt coal power plants for their entire 50-year lifespan. [ref 3]
Gold Standard, another world-leading carbon offset program, has by contrast welcomed IC-VCM’s proposals: “we increasingly see the importance of the IC-VCM to ensure high standards and provide a benchmark for quality across the market, and to shine a spotlight on entities issuing credits that do not meet this benchmark.” Where others have questioned whether the CCPs can be realistically assessed in the proposed timescale, Gold Standard has said “We do not have time for the trust of those willing to invest to be shaken by standards and methodologies that fall short of where we should be.” [ref 4]
CO2eco’s Closing Thoughts
Grey areas are still yet to be teased out from the IC-VCM’s proposals. For instance, will the CCPs systematically embed Corresponding Adjustments under Article 6? (nb at the time of writing we await outcomes from COP 27 which will hopefully clarify global carbon accounting mechanisms). What will be the implication for the market if they do not? Is the degree of scrutiny on carbon crediting programs justified – or could it damage investment and market liquidity?
Nevertheless, a global benchmark would support market confidence – especially when transparency and trust has been absent for so long. Where climate targets are being missed, driving carbon prices upwards with quality-assured credits is vital for unlocking supply and VCM growth.
In our view, ICVCM’s approach to permanence is critical to carbon credit integrity. After all, shouldn’t the chief aim of a carbon credit be long-term carbon capture?
The treatment of permanence fluctuates widely between current certification frameworks and ratings methodologies. Thus, establishing a reversal compensation method for a carbon credit, insurance mechanisms or reversal risk price-ins could be a major step towards standardising the market for long-term carbon removal.
With the CCPs’ publication imminent, this is a watershed moment for the future of the Voluntary Carbon Market.
Carbon Market Analyst, CO2eco
- ICVCM, Public Consultation Final Compendium. (2022)
Figure 2. ICVCM, Public Consultation Final Compendium. (2022)
- Responsible Investor, Verra Slams ‘Impossible and Unworkable’ Draft Carbon Market Integrity Code. (2022) https://www.responsible-investor.com/verra-slams-impossible-and-unworkable-draft-carbon-market-integrity-code/
- Grantham Research Institute on Climate Change and the Environment, Do Carbon Offsets Offset Carbon? (2021) https://www.lse.ac.uk/granthaminstitute/publication/do-carbon-offsets-offset-carbon/
- Gold Standard, Response from the Gold Standard Foundation to the Integrity Council for the Voluntary Carbon Market’s Consultation on its draft Core Carbon Principles, Assessment Framework and Assessment Procedure. (2022) https://www.goldstandard.org/blog-item/response-gold-standard-foundation-integrity-council-voluntary-carbon-market%E2%80%99s-consultation