Carbon credits with high-quality tag emerge on VCM in bid to rebuild trust

After a long delay, the first batch of carbon credits with a high-integrity label finally emerged on the voluntary carbon market, with market participants hoping this will bring much-needed credibility and clarity.

A total of 27 million carbon credits were tagged with the Core Carbon Principles marker after the approval of seven carbon crediting methodologies, the Integrity Council for the Voluntary Carbon Market (ICVCM) said June 6.

These credits, emanate from projects that fall under two broad categories: Ozone Depleting Substances (ODS) and Landfill Gas Capture and Utilization.

This is a significant milestone for a market that has been plagued by quality concerns, especially in the past two years, where the growing scrutiny has led to a sharp slump in the value on the VCM.

Upcoming announcements

These credits may only represent a small section of the VCM, but it is a much-needed start, Pedro Martins Barata, Co-Chair of the ICVCM Expert Panel told S&P Global Commodity Insights.

Barata said the next announcements in the coming months will "focus on a broader set of methodologies" and the impact from these could be more significant, as they represent a large share of the market.

As many as 27 project categories of carbon credits, representing over 50% of the market, remain under active assessment, with announcements on these expected by September, according to the ICVCM.

These include credits from project categories such as Renewable Energy, REDD+, Improved Forest Management (IFM), Afforestation, Reforestation, Revegetation (ARR).

"This is just the beginning. We will be announcing further categories eligible for CCP-labels that meet our criteria as we continue our careful and thorough evaluation of the submitted crediting methodologies and properly consider complex issues with our expert stakeholders," added ICVCM Chair Annette Nazareth.

Price premiums

The VCM has endured tough years, and many expect the CCP-labeled credits to lead a better functioning market, with these offsets demanding higher prices.

Barata said from an economic theory perspective it is safe to assume that these CCP-credits will fetch high price premiums compared with the credits without the high-quality tag.

I think that the size of that price premium "will really depend on how credible the [project and credits] are," added Barata.

However, some traders have said the premiums will only emerge once the supply and demand dynamics for those categories and projects are at play.

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 June 4, slightly up from a record low of $2.70/mtCO2e seen in most of February this year.

ICVCM, which is tasked with setting threshold standards for high-quality carbon credits, has come up with CCP labels and an assessment framework to help define high-integrity carbon offsets.

Carbon credits can only be tagged with the CCP label if the carbon-crediting program is approved as "CCP-Eligible" and the projects that generate the credits use methodologies that are also "CCP-Approved", according to the ICVCM.

So far five carbon crediting programs with a 98% share of the market have the CCP labels: Verra, the Architecture for REDD+ Transactions (ART) body, American Carbon Registry, Climate Action Reserve and Gold Standard.