INTERVIEW: Confidence in carbon markets will grow as initiatives gather pace: Verra

This year will be pivotal for the voluntary carbon markets, with more clarity expected around the definitions and integrity of carbon credits amid recent criticism of rainforest offsets, the head of the world's largest certifier of carbon credits told S&P Global Commodity Insights in an interview this week.

"The market as a whole is undergoing a transition but I think when all is said and done, we will see a much more robust and strong carbon market because it will have clear guidelines on what kind of claims you can make and what kind of credits you can [use]," Verra CEO David Antonioli said Jan. 30.

Antonioli said programs carried out by the Voluntary Carbon Markets Integrity Initiative (VCMI) and the Integrity Council for the Voluntary Carbon will give these markets much needed clarity and credibility, boosting industry confidence.

The Integrity Council for the Voluntary Carbon Market recently launched a timetable to introduce high-integrity carbon credit labels in the third quarter of 2023. The Council will also publish its final Core Carbon Principles (CCPs) in March, "establishing a global threshold for high-integrity carbon credits based on solid science and clear, measurable and verifiable data."

The VCMI is reworking a draft consultation aimed at bringing integrity to corporate claims made about the use of carbon credits.

"We welcome regulation. I think these initiatives are just doing that... That regulation oversight is going to be really important," Antonioli said. "I think [these] will give more confidence to the market and will see a growth in demand because there is pressure on companies to do something about climate change and right now it is very complicated."

Analysts at S&P Global Commodity Insights expect integrity initiatives to be a key feature in 2023.

"Integrity initiatives will also be a key driver of increasing prices for high-quality credits while putting negative price pressures on low-quality units," S&P Global analysts said in a recent note. "[This] will translate to credit labels and market self-regulation, with buyers taking an active role in pushing for clearer standards that will avoid accusations of greenwashing."

Forest credits controversy

The credibility of voluntary carbon markets -- and particularly Verra's role -- has come under attack in recent weeks.

In mid-January, the Guardian newspaper published a report alleging that REDD+ carbon credits issued by Verra are largely "worthless" and do not represent genuine carbon reductions.

REDD+ stands for Reducing Emissions from Deforestation and Forest Degradation, and encompasses all activities aimed at protecting forests from deforestation. REDD+ projects aim to contribute to the fight against climate change by preserving existing forests in specific areas that are considered at risk of deforestation.

US-based Verra has defended its credits and released a detailed technical review disputing the newspaper investigation, labeling it "patently unreliable", as it contains "multiple serious methodological deficiencies."

The newspaper report, which was carried out with Germany's Die Zeit and Sourcematerial, has already had an impact, pushing down prices for nature-based solutions.

Platts, part of S&P Global, assessed the price of Platts CNC -- an assessment that reflects the most competitive nature-based carbon credit prices -- at an all-time low of $2.60/mt CO2e on Jan. 31. Nature-based credits are generated from conservation, agriculture, forestry and land management projects.

Antonioli said that he believes these stories will have a limited impact, but admitted there was some "confusion" on some carbon credit claims.

"Ultimately, we take the allegations very seriously but when all is said and done, I don't think they will have much impact because fundamentally they are based on very flimsy analysis," he said.

The Guardian editorial said that carbon offsetting was a model with dangerous flaws and that carbon credits should be viewed as a last resort, and not as a solution.

But Antonioli said that, because of the limited ability on government to put a price on carbon, voluntary carbon markets are currently playing a crucial role in a time of a climate crisis, adding confidence in them will grow in the coming years.

"If we make them [these markets] easy enough to understand and you have got this public understanding and pressure on companies to do something on it they will be able to engage with them in a much more effective manner," he said.

Learn more about the Voluntary Carbon Market with the first video of our VCM series

Methodology criticism

The Guardian story also zoned in on the methodology used by Verra to certify its credits, saying the researchers found that the evidence used to calculate offsets was flawed. "Predictions of what would have happened in the absence of credits were unreliable, and benefits were overstated," the UK newspaper said.

But Antonioli said the Guardian-backed investigation ignores key drivers like forest type, socio-economic conditions and geography.

However, he admitted that the system was not perfect and that Verra's methodology is regularly evolving.

"We are making sure that the rules get updated with the latest best science, best practices and that is what we are doing with our REDD framework to enable the next generation of REDD+ activities with some different rules," he said.

Verra, which administers the Verified Carbon Standard, currently has five methodologies for REDD+ projects, all of which are regularly updated.

Antonioli said Verra is currently consolidating its REDD methodology to include jurisdictional baselines, shorter baseline periods in its approach along with using remote sensing and satellite imagery to verify the impact of the projects.

This comes as the market is also moving towards a jurisdictional approach now known as Jurisdictional REDD+, with governments increasingly taking ownership of voluntary carbon activity.