INTERVIEW: Voluntary carbon market on cusp of gradual comeback: VCMI's Kenber

The foundations for a slow recovery in carbon offsets are currently being laid, aided by a slew of quality initiatives, an official from Voluntary Carbon Markets Integrity Initiative told S&P Global Commodity Insights.

Mark Kenber, executive director of the VCMI, which has crafted a rulebook for buyers of carbon credits, also said the first submission by a corporate for the Claims Code of Practice is imminent. Kenber said the VCMI guidance released last year was "very well received" and he is "expecting the first VCMI claims to be made in the coming months."

This comes amid a critical year for the voluntary carbon market as several integrity programs, including the Core Carbon Principles by the Integrity Council for the Voluntary Carbon Market, start to be adopted by the industry as a marker for high quality.

Significant year for carbon

"This year is going to be a very important one for VCMs," Kenber said in an interview. "We will see the first CCP-labelled units come out from the ICVCM. We will also see the vast majority of project categories and methodologies reviewed then either approved or rejected by the ICVCM.

"This will give the market greater confidence and certainty," he said. "The coming months will also see the first companies make carbon Integrity claims, which will effectively validate the standard to the broader corporate community, encouraging further adoption."

Confidence and trust in the VCM has been at a low ebb in the past year, with serious questions raised in the media and by academics over the efficacy of carbon projects and credits, leading to a steep fall in liquidity and prices of offsets.

But Kenber said the market was showing some signs of positivity, referring to the credit issuance and retirement activity seen over recent months, along with some encouraging news from the 28th UN Climate Change Conference held in Dubai last year.

"The key for 2024 will be whether this represents the beginning of renewed appetite for VCMs or a one-off blip," he said.

Around 20 million mt of carbon credits were retired in January, down 45% from the record high December 2023 levels, but this was the third-highest retirement volume in a month since the beginning of 2023, according to analysts at S&P Global.

However, prices of several carbon offsets remain at quite low levels, with nature-based credits particularly weak due to low liquidity.

Platts, part of S&P Global, assessed nature-based avoidance carbon credits at a record low of $4.20/mt on Feb. 19. Prices have been unchanged at this level since Feb. 9.

Boost from COP28

This slight change in sentiment comes amid a "more vocal recognition" for carbon finance expressed by many governments at COP28, Kenber said.

Parties were unable to agree on key market-based mechanisms under Article 6, but several initiatives were launched in support of the voluntary carbon market by many countries and industry bodies.

"This represented a welcome shift in the discussion from seeing carbon credits principally as way for companies to offset or compensate for emissions to countries increasingly seeing sale of carbon credits as an essential source of net zero-aligned development finance and a means of leveraging other sources of capital for climate mitigation and sustainable development efforts," Kenber said. "They [governments] also called for higher prices for high-quality carbon credits and enabling legislation in countries where investing companies are from."

Analysts at S&P Global also said that heightened interest at COP28 could represent the beginning of a new phase for the VCM.

"These initiatives are expected to support supplier, buyer and investor confidence, which in turn should encourage market growth from 2024," they said in a recent note.

"However, actual growth will depend on the timelines for implementation of several of the proposed initiatives, as well as the direction of national and international carbon pricing policy in the new year and beyond."

Scope 3 claims

Late last year, the VCMI released an updated set of guardrails to help buyers make high-integrity claims on their use of carbon credits.

The guidance includes a Monitoring, Reporting and Assurance Framework and a Carbon Integrity Claims brand, encouraging corporates to increase their participation in the voluntary carbon markets. VCMI also launched a beta version of a Scope 3 Flexibility claim to aid companies in taking responsibility for their Scope 3 emissions.

Kenber acknowledged that the reaction to this guidance was generally positive but also included "reactions from both sides of the VCM debate."

"There have been those who welcome this as a positive development as it could drive more climate investment and mean that companies have the ability to go above and beyond their requirements and are not just 'off the hook' if they don't meet their targets, while others expressed concerns that this may be an opportunity for companies to invest in carbon credits instead of investing in decarbonization," he said.

This flexibility claim is expected to be finalized by the end of 2024, which involves refining the criteria and guardrails of the new claim.

"It was important to publish these in beta version to openly assess this with all stakeholders," Kenber said. "And so that is what we will be working on with the aim of publishing the final version by the end of the year. We're also discussing with a number of companies to pilot it and will assess any adjustments that need to be made."