Reckoning with renewables: Expanding the Carbon Credit Standard pool

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As traditional carbon project certifiers like VCS and Gold Standard have exited the Renewable Energy carbon credit market, it has opened space for newer certification schemes to enter the market, some of which even promise a very small certification period.

"Since [Gold Standard and Verified Carbon Standard] won't do it, there is a void in the market," an India-based developer told S&P Global Platts.

These new Standards are an alternative way for project developers to potentially bypass the "additionality" question entirely and continue to monetize emissions savings through the voluntary carbon market, a development that many in the market have indicated could further undermine the reputation of the voluntary carbon markets.

"They may create a notion that cheap credits are available in the markets, which will hamper the carbon markets," the carbon originator said.

Concerns over the integrity of voluntary carbon markets are not new. Environmental activists have often called out voluntary carbon credits, referring to them as an escape route for polluters. Much of the policing of credit quality has passed on to the Standards, who act as gatekeepers of both the methodology underpinning individual carbon projects, as well as the carbon accounting practices to ensure that the number of credits generated match the volume of greenhouse gas emissions either reduced, avoided or removed from the atmosphere.

Carbon credits generated from renewable energy projects have often faced the most questions, primarily around the issue of "additionality", or the principle that a project requires the extra revenue generated by credits to be operational. However, many renewable energy project owners have reportedly turned carbon financing into a business model, which undermines the central premise of additionality, a source told S&P Global Platts.

Platts Renewable Energy Current Year, which reflects credits generated between 2020 and 2022, is currently holding below $7/mtCO2e, less than half the price of Platts Nature-Based Avoidance assessment, which reflects projects like avoided deforestation.

"Looking at the demand-supply scenario over next four to five years, it appears most nature-based projects wouldn't be available. Most volumes from nature-based will only come later," the developer said. So, if there is demand for renewable energy credits, it will be fulfilled by other standards.

Both GS and VCS, the two largest standards in the market, announced in 2019 that they would not accept credits from grid-connected renewable energy projects from middle-income developing countries, starting from 2020.

With the two biggest certifiers out of the picture, renewable energy projects are now seeking alternatives to the traditional voluntary carbon market standardization process by looking for Standard certifications with potentially less stringent standards around additionality.

New Standards take on local dimension in a global market

While some new global standards are emerging like the "Global Carbon Council", most of the new standards are local, looking at a specific country. India-based Universal Carbon Registry and Carbon Registry-India, as well as US-based Global Emissions Standards are some of the new entrants in the space.

Another source added that many new carbon certifiers are using this opportunity to enter the market. However, commitment to project integrity is ultimately untested.

"Many of these registries are compromising on the quality," a source said.

Even though credits generated from Renewable Energy projects typically trade at discounts to credits generated by other types of credits, Platts Renewable Energy has more than doubled in value since it launched in mid-August.

"They are not very focused on carbon-financing or decarbonization, just volumes," a carbon-projects originator said.

A developer said: "If a Standard entertains projects from early 2000s, and doesn't look at additionality, and are even considering projects that were rejected by CDM and VCS, then it's just to attract potential volumes to the Standard, and that will be compromising on the quality of the project."

Lauding the Global Carbon Council, many project developers and traders said that of all the new certifiers that emerging in the market, GCC has gained some credibility. One developer even described GCC's internal evaluation process as "more stringent than that of VCS."

Sources said the only way these new standards can bring credibility is by following stringent practices rather than focusing on volumes. Evaluation of projects is a time-consuming process, and it should remain so, if the credibility is to be not called into question, they said.

But "additionality" -- and, by extent, market perception of credibility -- remains a somewhat nebulous concept.

Kishore Bhutani, the program head of Unified Carbon Standard, presents an interesting view on additionality. Talking to Platts, Bhutani said: "Let not registries play the role of green gods -- no registry should have the power to say who can enter the voluntary market and the market needs to move away from narrow additionality, expensive entry fees, centralized hierarchy and offer more than mere offsetting utility if we have to win this war against climate change."

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