VCM to slowly transition from mix of avoidance, removals credits to removals only: Carney, Antonioli

The voluntary carbon market will slowly move away from the current mix of avoidance and removal credits towards a removal credits only market, said Mark Carney -- UN special envoy for climate and finance and former governor of the Bank of England -- and David Antonioli, CEO of the world's largest certifier of carbon credits Verra. They were speaking in a webinar on the role of carbon credits in fighting climate change hosted by the White &Case legal studio late March 29.

"While it's clear that there is a role for removal credits, there are questions about whether companies should compensate [their emissions] using initially a mix of avoidance and removals," Carney said, adding that the case for the latter comes from the need to protect forests.

"We cannot afford more deforestation. There's a clear commitment by countries to end deforestation by 2030 but we need to bring this forward," Carney said.

According to Antonioli, "there has to be a transition away from avoidance to removals," although in the meantime we needed to do all we could to fight climate change.

As we go through the decade, Carney said, this issue would go away and the focus will go to removal credits, also thanks to the fact that carbon capture and other removal technologies will become economically feasible, the special envoy said.

Carney highlighted the role that carbon credits play as catalysts in helping make profitable technologies that are currently not profitable.

The shift from avoidance to removal credits is set to be one of the main topics of discussion in the run up to the next UN Climate Conference, market sources have previously said.

Exchanges' role

Carney said that he was hoping to see, in the run up to the next Un Climate Conference, the Sharm-El-Sheik COP27, consensus forming around the Core Carbon Principles (CCPs), which are being finalized by the Integrity Council for the Voluntary Carbon Market as well as "a bit of coalescing" of market development around hubs of market activity.

The CCPs aim to set threshold standards for high-quality carbon credits.

According to the former Bank of England Governor, exchange traded credits can play a fundamental role in the development of the VCM as they can both provide price references in a very heterogeneous market, and give coherence to the whole market.

"There is a value in having reference points," he said. "Other contracts can be priced off them," he said.

Regulation

Talking about the role that the government and regulators can play in the scaling of VCM, Antonioli said more involvement of national authorities would be a very welcome outcome.

"There is a lot to gain from collaborating more closely with governments," the CEO said. "For example, having governments start to regulate and police companies' claims would be a very good thing," he said.

Carney said he expected regulators to pick up what the private sector had done so far in structuring the VCM, similar to what happened with Task Force on Climate-Related Financial Disclosure (TCFD).

"I think the authorities will pick up what the private sector has done and will formalize it, as it was done with the Task Force on Climate-Related Financial Disclosure," he said.

Article 6

Asked which credits will be likely to satisfy Article 6 of the Paris Agreement, Antonioli said: "You want to start with credits aligned to the Core Carbon Principle, but then you want to think about where your credits want to go," he said, highlighting the possibility for VCM credits to access compliance markets under the 6.2 and the 6.4 mechanisms.

The 6.2 and 6.4 are crediting mechanisms envisaged by the Article 6 of the Paris Agreement, which was historically signed in November 2021 at the Glasgow UN Climate Conference. Credits issued under these are yet to be developed schemes, or aligned with them, and can be used by nations part of the Paris Agreement to reach their nationally determined contributions.

These two programs, article 6.2 and 6.4, are being referred to by market players as compliance markets since they allow nations to meet requirements legally set by the Paris Agreement.

"There are credits coming from the VCM that can access the compliance market under Article 6.2 of the Paris Agreement, and which are therefore reportable by nations against their nationally determined contributions," Antonioli said.

Credits coming from the VCM could also access the 6.4 crediting mechanism under the UNFCC, he added.

Carney said however that the Article 6 still needed to be "nailed down" and that he wasn't sure if the next UN Climate Conference would manage to do so.

An open issue remained the Corresponding Adjustment and its application in case a credit is being exchanged between a nation and a private player, the special envoy said.