The US government has developed guidelines for buyers and sellers of carbon offsets, underscoring the Biden administration's commitment to legitimize the use of carbon credits to fight climate change.
The US Treasury, Energy and Agriculture departments have signed on to a set of "principles for responsible participation" in the voluntary carbon market, aimed at ensuring credit issuers are capturing the emissions they claim to be, senior administration officials said.
The joint policy is expected to be unveiled May 28 at an event in Washington, DC, by top Biden administration officials, including Treasury Secretary Janet Yellen and Energy Secretary Jennifer Granholm.
The announcement comes as consumers and investors are putting pressure on companies to reduce their greenhouse gas emissions, creating a market for carbon offsets generated by activities like tree planting or vacuuming CO2 out of the atmosphere. But unlike regulated markets, such as California's cap-and-trade program, the voluntary carbon market is largely ungoverned, leading to scandals in recent years over companies buying carbon credits from phony projects.
"Unlike many commodities, the physical delivery of the tonnes of emissions reductions or removals that underpin credits is not typically taken by the buyer, but instead by the earth's atmosphere," the federal agencies wrote in the joint policy statement. "As a result, credit integrity is paramount."
The new principles are not "standards," nor are they enforceable, but they will be used as a policy to guide decisions such as DOE investments in carbon removal technology, senior officials said.
"Voluntary carbon markets can help unlock the power of private markets to reduce emissions, but that can only happen if we address significant existing challenges," Yellen said in a May 28 statement. "The principles released today are an important step toward building high-integrity voluntary carbon markets."
The guidelines state that carbon credit-generating activities should represent "real decarbonization" and "avoid environmental and social harm." For corporate buyers, the purchase of third-party offsets should be secondary to reducing emissions within their own value chains.
Buyers should also disclose information about their purchases and ensure that their public claims — such as voluntary climate pledges — match the true impact of the credits, according to the principles. And lastly, carbon market participants should improve market integrity wherever possible, such as by making contract terms and prices publicly available, and seek ways to lower transaction costs.
The policy is not the first action of the Biden administration attempting to bring order to the voluntary carbon market. At the COP28 conference in December 2023, the Commodity Futures Trading Commission proposed guidance on the listing of carbon credit derivative contracts. The commission has also created a task force to tackle environmental fraud in both regulated and voluntary markets.
Other calls for market standards have come from within the carbon removal industry, from vendors of "durable" offsets seeking to justify their higher prices and buyers with ambitious climate targets. The push has created a relatively small but growing market for offsets generated by technologies such as direct air capture, which are expensive but longer-lasting and easier to verify than most nature-based offsets, according to industry experts.
Meanwhile, the DOE has sought to support high-quality carbon removal projects with a $3.5 billion grant program for direct air capture development and a $35 million pilot procurement program. The department also plans to create a public leaderboard of voluntary carbon credit buyers in hopes of spurring competition.