INTERVIEW: Carbon market's role is sector change, not scaling up: Verra CEO

Carbon has been misunderstood as a commodity market in need of increasing liquidity and scale, while its actual role is as an instrument for transforming economic sectors, the CEO and co-founder of Verra, David Antonioli, told S&P Global Commodity Insights in a recent interview.

In May Antonioli announced he would step down as CEO of Verra, the world's largest voluntary carbon market (VCM) credit issuer, after 15 years at the helm. His last day at Verra will be June 16.

"Carbon needs to be understood as a transformational tool, one that helps change and transform individual sectors of the global economy...some folks in the sectors don't appreciate that. They see carbon as 'greenwashing'," he said.

Antonioli characterized the environmental community as a circular firing squad.

"We love to shoot at each other. Meanwhile, in the fossil fuel industry, they are laughing at us. And they're making record profits and not doing what they need to be doing," he said.

Those in the carbon industry had focused too much on scaling up the market and too little on communication.

"If I had a magic wand, I would have hired a chief communications officer five years ago," he said.

The VCM today was "very transactional. There's a lot of excitement about volumes and the growth and where's it going to go. What it doesn't do is articulate that we can't and should not be relying on carbon forever in any particular sector," he said.

"You can't be thinking along the lines that you have to continue to build an empire. That doesn't work. Forests, cookstoves, rice or landfill -- how do they stop relying on carbon credits? We need to think about that," he added.

Defining success

In a perfect world the VCM would not exist, Antonioli said. All decarbonization activities would be regulated by governments with no additional activity requiring a VCM to intervene. There would be no demand for credits either because companies would be on top of their obligations.

This was, however, "counterintuitive to how businesses operate. Businesses are always about growth. You've got to go to the next stage and get more investment," he said.

As a non-profit organization, Verra's mission was to solve the climate problem. "If the problem gets solved, great, we can shut the program down. I'd be delighted," he said.

What did Antonioli think of suggestions the VCM could be cannibalized by the Paris Agreement's Article 6 system?

"Who cares? As long as we get the action. If there are commitments by countries, and there's a lot of trading under Article 6, and it does displace activities in the voluntary market, that's great. In many ways, it's kind of a victory," Antonioli said.

Verra may still have opportunities to participate in the Article 6.2 system, which allows governments to set bespoke, bilateral agreements for emission trading, he added.

Complicated bureaucracy

Antonioli shared a story about a recent trip to Jakarta, Indonesia, where he met the owner of a business that had been felling trees for palm oil production, but had since resorted to carbon markets to finance an alternative pathway.

"It's a great story because it tells me that the market is starting to provide signals to the broader global community," he said.

To get carbon credits issued from a project, however, a developer needs to understand Verra's sophisticated crediting methodologies and submit a 100-page application document.

"What I hear a lot of is that small projects can't participate in the carbon markets. It's too expensive," Antonioli said.

So while there was a lot of capital looking for good projects, current barriers to entry were making it difficult to participate, he said.

Equitable share of profits

Rainforest nations have been calling for greater use of the Paris Agreement's Article 5 to finance forest conservation activities, effectively stepping away from the carbon market.

Article 5 establishes a results-based payment system, through which countries directly receive remuneration if they achieve positive climate impacts.

In contrast, the carbon market involves multiple middlemen charging commissions to help complete documentation, or buying carbon credits from host countries to sell at a profit.

While middlemen served a purpose and "make things happen," Antonioli noted: "If we aren't able to solve the structural and communications issues around carbon markets, the investment will go elsewhere or won't come at all."

More transparent benefit sharing would help, although this was a challenge under Article 5 too, in the event that money flowed directly to a host community.

"What happens if the community isn't that idealized? What if the community is actually dominated by two people who control everything and use things like this to enrich themselves? This is an evolving space, and we're learning as we go. Sometimes it feels like we're trying to change the wheels on the bus while it is hurtling down the road," he said.

Shifting towards removal

Another heated debate today is whether "avoidance" credits, making up the majority of today's VCM supplies, have a future.

Typical avoidance credits are generated from renewable projects and REDD projects, issuing credits on the basis fossil fuel displacement (renewables) or protection against deforestation and degradation (REDD).

In contrast, removal credits are issued based on actual emissions removed from the atmosphere, for instance via afforestation or direct air capture technology. These are perceived to have higher integrity and command a premium in the market.

"Right now there's room for both [avoidance and removal credits]. But we can't be investing in avoided emission reductions forever. If we're still investing in new REDD projects in 2049, it's game over," Antonioli said.

For standard bodies like Verra and companies who participate in the VCM, the focus will gradually shift to carbon removal projects, he said.

This would be reflected in the upcoming fifth version of the VCS standard, the core document that determines how Verra assesses carbon projects and issues credits.

Antonioli said Verra should have moved more quickly to review REDD methodologies and stop crediting renewable projects, noting delays were mainly due to resource shortages. Despite that, he emphasized Verra had looked into enhancing REDD methodologies before the media investigated the issue.

He also thought Verra could have provided clearer guidance on how corporates articulate net-zero claims, especially with regard to buying avoidance credits to offset hard-to-abate emissions.

"Offsets give companies that flexibility to say look, I'm not there yet, but in ten years I will retire my boiler and my emissions are going to come down," he said.