Exaggerated claims of offset, opaque market practices, conflict of interest and the appropriation of credits for greenwashing have been highlighted by critics
A set of principles and an assessment framework for the voluntary carbon market have recently been developed by the Integrity Council for the Voluntary Carbon Market (ICVCM), an independent governance body. The VCM promises a convenient path for industries to achieve net-zero emissions by ‘offsetting’ emissions by purchasing carbon credits instead of reducing emissions of their own businesses.
The idea of carbon markets, where carbon is traded as a commodity, was developed during the 1990s, particularly after the Kyoto Protocol. It established multiple market mechanisms for trading carbon, including the clean development mechanism, joint implementation, and international emissions trading.
Broadly, two types of markets developed over time — the compliance carbon markets set by governments and regulatory bodies to meet emission reduction targets and the voluntary carbon markets, where participating industries and other entities voluntarily purchase carbon credits to offset their emissions.
Over time, carbon markets have come under heavy criticism, as highlighted in a 2022 paper by the New Delhi-based non-profit Centre for Science and Environment (CSE). Concerns have long been raised about the authenticity of carbon credits traded on these markets, the transparency of the trading process, and the potential risks to environmental integrity.
Unlike compliance markets like the European Union’s Emissions Trading System, voluntary markets do not have the same level of regulation. In the voluntary market, non-profit registries have developed their own standards and certification criterion, such as the Verified Carbon Standard (VCS) of Verra or the Gold Standard of the Gold Standard Foundation.
In recent times though, research and investigation by experts have found high volumes of credits awarded by some of the reputed standards worthless, contributing to greenwashing, which is becoming more commonly associated with carbon offsetting.
In order to set things in order, governments, businesses, and civil society organisations are considering measures to implement some oversight for the voluntary markets. The ICVCM is one such private body set up in 2021 and has representations from the carbon market participants, non-profits, businesses, academia and indigenous communities.
The ICVCM aims to enforce standards that would benchmark ‘credible’ and ‘high-integrity’ carbon credits. The set of principles it has released, known as the core carbon principles (CCP), seeks to address the often-highlighted issues that plague the voluntary carbon market, including tracking, transparency, additionality, permanence and double counting. Each core carbon principle is backed by an assessment framework against which credit issuance would be checked and would receive a ‘CCP label’.
ICVCM is a successor to the Taskforce on Scaling Voluntary Carbon Markets (TSVCM), a body formed in 2020 by Mark Carney, the UN Special Envoy for Climate Action. In 2021, the TSVCM recommended setting up a new governance body to focus on the integrity of the largely unregulated market, which resulted in the formation of ICVCM.
The body is also due to come up with another set of frameworks in the coming months which will make specific standards for different categories of credits.
For these governing councils, a key challenge would be to convince market players to adopt prescribed standards without diluting the framework’s provisions. The work of ICVCM has been welcomed by Verra and the Gold Standard — two of the largest issuers of carbon credits who have issued more than three-quarters of all carbon credits in the voluntary market to date.
However, the draft of the core carbon principles released in September 2022 wasn’t favourably received in general. Verra, for instance, criticised the ‘heavy assessment processes’ prescribed in the framework. Reiterating its support to ICVCM, Verra, in its March 2023 newsletter, announced its plans to review the principles as well as the framework in detail, whereas the Gold Standard expressed its opinion that the principles do not raise the bar for ambition or quality.
VCM was reported to be worth $two Billion in 2021, and TSVCM, with support from McKinsey, estimated that the demand for carbon credits would increase 15 times by 2030.
An investigative report released by the Guardian in early 2023 took VCM landscape by storm when it said that more than 90 per cent of rainforest-based carbon credits issued by Verra — the biggest certifier in the VCM — were ‘phantom credits’. In other words, they were not based on actual carbon offsets on the ground.
The exaggerated claims of offset, opaque market practices, the unscientific basis of offset estimation, conflict of interest and the appropriation of credits for greenwashing have been highlighted by critics for as long as the markets have existed.
On the other hand, VCM has been a vehicle of crucial funding for mitigation and adaptation projects in the Global South. For instance, the market has rewarded credits to over 550 renewable energy projects in India alone over the past 20 years.
Given the scale at which the market is projected to grow, experts feel that VCM should be reined in. At the same time, voluntary participants feel the need to restore trust in the market where accusations of fraud and malpractice run rampant.
Beyond all the standards, principles, and frameworks that are optional for participants to accept and get labelled with, the market falls short of a definitive regulatory setup that ousts and outcasts violators.
On these lines, it remains to be seen how the ICVCM’s Core Carbon Principles will be adopted, implemented, and, above all, achieve the objectives of the carbon market mechanism while ensuring environmental integrity at all times.
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