COP26: Vast support for voluntary carbon market integrity: IIF chief

There is vast support for the global Voluntary Carbon Market to place environmental integrity as its central pillar, Sonja Gibbs, managing director and head of sustainable finance at the Institute of International Finance said in an interview Nov. 5.

Making sure emissions reduction projects are real, additional and verifiable is seen as critical as the global market for carbon offsets is set to expand at a rapid pace, and anything less would bring reputational risks for companies seeking to implement sustainability plans, she said.

"There has been a huge scale-up in interest for ESG [Environmental, Social and Governance] investments. There is a very strong drive now for good governance and awareness that investments have impacts," Gibbs said.

"That kind of zeitgeist is going to be applicable to carbon markets," she said.

The IIF is a trade group for the global financial services industry and is a co-sponsor of the private sector-led Taskforce on Scaling the Voluntary Carbon Market, initially conceived by UN Special Envoy for Climate Action and Finance and former Bank of England Governor Mark Carney.

The Taskforce launched a new governance body in September 2021 called the Integrity Council for the Voluntary Carbon Markets.

The Council brings in heavyweights from the financial markets as well as representatives from developing countries and indigenous groups, in an effort to establish balance and transparency in how the market for carbon credits will operate.

The integrity council will be led by Annette Nazareth, a former Commissioner at the US Securities and Exchange Commission and Hugh Sealy, former chair of the methodologies panel at the UN Clean Development Mechanism – one of two flexible mechanisms that created carbon credits under the Kyoto Protocol.

"Our priorities are getting the new governance body up and running and becoming effective. There are many moving parts, and this is a challenging and complex topic. It needs to be a perfectly structured governance body," said Gibbs.

Carbon credit prices surge

Carbon credit prices have surged in 2021 as demand grows from investors as well as companies wanting to offset their emissions as part of a sustainable business plan.

CORSIA-eligible carbon (CEC) credit prices have increased by 856% since S&P Global Platts launched daily assessments in January, with prices assessed at $7.65/mt CO2e at the close Nov. 4, compared with 80 cents/mt on Jan. 4, 2021.

Meanwhile, nature-based credit prices hit double digits for the first time Nov. 3 at $10.05/mt, according to Platts assessments, a gain of 132% since the first assessment on June 14, 2021.

The integrity of the carbon credits market matters for everyone from a natural gas producer whose customers want to buy low-carbon cargoes of LNG, through to a farming company wanting to understand how to bring in additional revenue streams from projects that use biomass to sequester atmospheric CO2.

Getting environmental integrity right is important for credibility in a market expected to expand by a factor of at least 15 by 2030, according to the Taskforce.

Information group Ecosystem Marketplace valued the global VCM at $473 million in 2020 and expects the value to top $1 billion in 2021.

With the size and value of the market expected to surge, getting the governance right now is paramount, according to Gibbs.

"The governance body has a very good balance between people who are incredibly focused on quality and people who know how to make markets work. We have academics and scientists with tremendous expertise, so we have people in the room who will bring this enormous heft," said Gibbs.

The taskforce is focused on developing a set of Core Carbon Principles that will guarantee environmental integrity of offset credits, boosting confidence in the market.

"The Core Carbon Principles set out those elements: baselines, monitoring and verification. If any project didn't meet those requirements, they wouldn't be credited," she said.

The UN Climate Change Conference in Glasgow, running Nov. 1-12, can help the VCM to develop through Article 6 of the Paris Agreement, but the market is chiefly led by the private sector, said Gibbs.

"The shape of COP has been clear for some time – it's been negotiated for some time now," she said.

"This is complementary and parallel work. The private sector-driven market for offsets has a shape now. The public sector work around Article 6 is going to have an impact, but not on the direction of travel," she said.

"The whole escalation of net-zero – we'll need all available options in how to deliver that," she said, as the world transitions from an economy mostly built on fossil fuels to one increasingly powered by clean energy and low-carbon technology.