Codes for high-integrity offsets revealed as voluntary carbon markets look to restore trust

A global guidance aimed at tackling quality concerns around carbon offsets was unveiled March 30 as the voluntary carbon markets look to recover from a crisis in confidence.

The Integrity Council for the Voluntary Carbon Market finalized its Core Carbon Principles, which lays out what a high integrity carbon credit should look like.

"This will reduce confusion, overcome market fragmentation, and give buyers confidence they are funding projects making a genuine impact on emissions," the governance body said in a statement.

The ICVCM also released details on an Assessment Framework for crediting programs and an Assessment Procedure, as it looks to set rigorous thresholds on disclosure and sustainable development to build confidence and comparability.

These integrity initiatives come at a critical time for the voluntary carbon markets, which have been lacking confidence and liquidity recently due to concerns over the credibility of some credits and projects.

Prices especially for nature-based credits have recently sunk to record-lows and many buyers have laid low amid a plethora of articles by news media and academia questioning whether several offsets represent genuine carbon reductions.

Platts CNC, an assessment that reflects the most competitive nature-based carbon credit prices, was assessed at $2.05/mtCO2e March 29, only slightly up from the all-time low of $1.70/mtC02e Feb. 3. Platts CNC averaged $9.55/mtCO2e in 2022, according to data from S&P Global Commodity Insights.

Comprehensive disclosure

"The CCPs and program-level criteria we are issuing today are an important step towards a transparent, regulated-like market where buyers can easily identify and price carbon credits that meet consistently high-integrity standards that will also increase ambition over time," Annette Nazareth, ICVCM Chair said.

To receive a CCP-label, participants will need to "provide comprehensive and accessible disclosure" on how each project calculates and quantifies its emissions impact, and how it assesses additionality and social and environmental impacts.

The CCPs include 10 codes that will help identify carbon credits that "create real, additional and verifiable climate impact with high environmental and social integrity, based on sound science and evolving best-practice," the ICVCM said.

The 10 principles are broadly based under three groups: governance; emissions impact and sustainable development. These are expected to be updated every two to three years in a bid to improve and strengthen them over time.

"The CCPs represent a full set of interlinked principles and are to be considered in their entirety. They inform and guide the assessment of carbon-crediting programs and different categories of carbon credits," ICVCM added. "The CCPs also enable the tagging of CCP-approved carbon credits with additional attributes that attest to other verifiable features associated with the mitigation activity."

The program-level Assessment Framework sets out detailed criteria to help assess whether carbon-crediting programs meet the CCPs, while the Assessment Procedure, explaining the process for implementing the CCP label in the market.

The ICVCM said it will publish the category-level Assessment Framework in the second quarter of 2023 and will initiate its assessment of carbon-crediting programs shortly after. CCP-eligible programs and CCP-approved categories will be announced in Q3 2023, enabling approved carbon-crediting programs to issue the first CCP-labelled carbon credits soon after, it added.

Credibility setbacks

The work aims to establish a definitive and consistent global benchmark for high-integrity credits, aiming to build trust and unlock urgently needed additional finance to reduce and remove billions of tons of carbon emissions that would not otherwise happen.

The VCMs, which have been constantly evolving over the past two decades, are currently undergoing a significant transition, with a renewed focus on integrity and quality initiatives.

On the supply side, another governance body, the Voluntary Carbon Markets Integrity Initiative (VCMI) is also reworking a draft consultation aimed at bringing integrity to corporate claims made about the use of carbon credits.

The global voluntary carbon market is estimated to have the potential to grow by more than fivefold by the end of this decade as companies and governments seek to offset emissions that cannot be reduced.

This market, which was valued around $2 billion in 2021, will reach $10-$40 billion by 2030 and trade around 0.5-1.5 billion mt/C02e, according to a recent report published by Shell and Boston Consulting Group.

But the market has faced intense scrutiny in recent months.

In mid-January, the Guardian newspaper published a report alleging that forest-based carbon credits issued by Verra were largely "worthless" and did not represent genuine carbon reductions.

Verra, the world's largest certifier of carbon credits, defended its work, and released a detailed technical review disputing the newspaper's investigation, labeling it "patently unreliable" and saying it contained "multiple serious methodological deficiencies."