INTERVIEW: Building a credible carbon market takes time; 'bear with us', says ICVCM

A step-by-step approach to informing the market on which project methodologies meet high-quality carbon credit thresholds is considered the best way forward given the high number of methodologies involved, officials from the Integrity Council for the Voluntary Carbon Market said April 5.

In a first major announcement the ICVCM confirmed that carbon credit programs from American Carbon Registry, Climate Action Reserve and Gold Standard had met its high-quality Core Carbon Principle labels.

The body said it would make monthly announcements on the remaining carbon standards and project methodologies leading up to September, it said.

Speaking to S&P Global Commodity Insights, ICVCM Chair Annette Nazareth said the board thought long and hard before concluding that incremental announcements were preferable to holding everything back for one big reveal.

"This is about doing it right and really going through a rigorous process. If the market understood that this was going to done in batches, then there shouldn't be a really negative impact," said Nazareth in an interview. "We just needed to start from somewhere as this is a long journey, with 100 methodologies to be assessed by September."

This year is a pivotal one for the voluntary carbon market after a turbulent 24 months.

The efficacy of some carbon projects and credits has been questioned by media and academia, which has dented market confidence, hurt liquidity and pushed prices down.

Market participants are now banking on integrity initiatives like those led by the ICVCM to raise standards among project developers and carbon registries.

Slower but better

The ICVCM said it was mindful that the market was anxious to get more details on integrity initiatives, but it would not be rushed.

"It takes time," said Pedro Barata, co-chair of the ICVCM expert panel. "We want to build a process that is credible and that is legitimate... bear with us."

The worst thing would be to rush decisions and find out six months later that "we were not doing a proper job," Barata said.

But both Nazareth and Barata said the extra time it was taking to reach decisions was due to the fact that many carbon registries and standards had taken several months before applying for CCP labels in order to improve their own governance.

"We got applications later than we expected, but we got better applications," said Nazareth. "And what it meant is that we were already realizing the positive impacts of our work, that it had already been manifested in these changes that were made before we got the applications."

Price impact

Prices of carbon credits have continued to come under pressure this year, while the number of issuances and retirements have remained largely stable.

Platts, part of S&P Global, assessed nature-based avoidance carbon credits at a $3.10/mtCO2e on April 4. This is up slightly from mid-February when it was at a record low of $2.70/mt, but it is a fall of more than $3/mtCO2e from last April.

Analysts at S&P Global said they expect prices of credits to remain largely unchanged in the second quarter of 2024 although the impacts of integrity initiatives are likely to support prices for CCP-labelled methodologies, potentially creating a two-tiered market.

"Depending on how quickly the ICVCM will issue decisions for different methodologies, it is possible that eligible credit categories will enjoy surging prices shortly after the results of the assessment process are announced," they said in a recent note. "This staggered approach could create significant price distortions in the short term."