Voluntary carbon markets bank on boost from US endorsement

Voluntary carbon market participants May 28 welcomed a move by US President Joe Biden to issue a set of principles aimed at restoring confidence in carbon credits and boost the role of offsets in decarbonization.

The market has been through a lengthy period of intense, critical scrutiny.

"Clear direction from governments gives companies confidence to act," said Mark Kenber, Executive Director of Voluntary Carbon Markets Integrity Initiative, adding Biden's step sent a signal to other governments and businesses.

Allister Furey, CEO and cofounder of Sylvera, which publishes ratings and analytics for carbon markets, called for more governments and institutions to recognize the power of high integrity markets.

"The carbon markets' potential is clear but legacy integrity issues continue to hamstring it," Furey said. "The US government's support for immediate reforms should complement the initiatives, standards and tools that have emerged to uplift market integrity over the past several years and provide positive reinforcement for continued efforts."

Well-functioning market

The US urged the US private sector and other stakeholders to responsibly participate in VCMs, consistent with its principles.

The endorsement from the Biden administration is seen as legitimatization of a well-functioning carbon market that links a supply of high-integrity credits to high-integrity demand from credible buyers.

"Voluntary carbon markets can help unlock the power of private markets to reduce emissions, but that can only happen if we address significant existing challenges," US Secretary of the Treasury Janet Yellen said.

"These principles recognize the need for: credit integrity, including protections regarding climate and environmental justice (supply integrity); credible credit use (demand integrity); and market-level integrity, including facilitating efficient market participation and lowering transaction costs," the US said.

"These principles are non-exhaustive, and they seek to elevate concepts already developed by civil society, international organizations, governments, and multilateral fora."

Tough times

Criticism of the quality of some carbon projects has had major repercussions on offset prices, with scrutiny dissuading some companies from participating in the market.

Prices of credits have taken a big hit in the past 12 months amid a fall in liquidity.

Platts, part of S&P Global Commodity Insights, assessed current year nature-based avoidance carbon credits at $3.45/mtCO2e on May 27, slightly up from a record low of $2.70/mtCO2e seen in most of February this year.

A series of integrity initiatives are also being adopted by the VCM currently, led by the VCMI on the demand side, and the Integrity Council for the Voluntary Carbon Market on the supply side with its Core Carbon Principles.