It is a cosy club: The voluntary carbon market is a closed-door affair

Voluntary carbon market is a sophisticated ecosystem. It involves a multitude of players to ensure that a carbon offset project delivers on its claims—that it avoids or removes greenhouse gases from the atmosphere. But in this cosy carbon club, conversations take place behind closed doors and no one wants to talk about the prices. It's a world designed by developers, verifiers, validators and registries to make money
Illustrations :  Ritika Bohra and Yogendra Anand
Illustrations : Ritika Bohra and Yogendra Anand

In India (as in most other countries), no government database exists on the number of projects that have been signed by different entities for carbon credits. The information is only available with global carbon registries.

The biggest global registry, called Verified Carbon Standard Program (VCS) is run by Verra, headquartered in Washington, DC. Data with the Berkeley Carbon Trading Project of the University of California, US, shows that VCS has 64 per cent of the independent (non-governmental) credits issued globally. Gold Standard is the second biggest global registry, followed by American Carbon Registry (ACR) and Climate Action Reserve (CAR), formerly California Climate Action Registry. A relatively new player is Qatar-based Global Carbon Council (GCC) registry. It was founded in 2016 and has since approved nine projects, a number of which are related to renewable energy. GCC claims that it has big plans for the future.

The registries are organisations that make standards and guidelines for project development, verification and trading. They also provide a platform for the project developer, which can be a private or public entity, to register their project and for these to be verified. The registry then issues carbon credits for verified projects that meet the criteria and demonstrate greenhouse gas reduction or removal.

The project developer, which designs the project and is responsible for its implementation as well as monitoring, ensures that the credits meet the standards for reduction or removal of greenhouse gas emissions.

  • The price of a carbon credit is strictly decided between the buyer and seller, who trade behind closed doors

  • Globally,2 registries with 6,481 projects have issued carbon credits for avoiding/slashing 1.4 billion tonnes of emissions. Annual transaction of the market was $2 billion in 2021

  • The price of carbon credits is dictated by market factors that do not necessarily serve the purpose of decarbonisation

The carbon credits that they earn from these registered projects can then be traded and used by companies to offset their emissions and meet climate goals. According to the “State of the Carbon Developer Ecosystem” report by UK-based market research organisation Abatable, 15 top project developers had in their kitty 35 per cent of the carbon credits issued globally in 2022. Three Indian companies made it to the top 15 project developers list—EnKing International (now EKI), Jaiprakash Power Ventures and Himachal Baspa Power Company. Of them, EKI has seen a phenomenal growth of 40 per cent year on year, with 34.2 million tonnes of carbon credits issued in 198 projects (see ‘Global stocktake’,).

In this market ecosystem there are other players as well. Project developers need to get their projects and claims about carbon offsets “independently” verified before these can be listed in the registries. They hire validation and verification bodies, who use different methodologies for different types of avoided or removal projects. It is only after these auditors give their reports that the project can be registered and credits can be issued. In India, two such validation and verification companies are Bengaluru-based EPIC Sustainability Services and Delhi-based Carbon Check (India) Pvt Ltd. The project developer also pays for the verification of the project.

 This article was originally published as part of Down To Earth’s special issue dated 1-15 October, 2023. 
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Discredited: The Voluntary Carbon Market in India

The other player is the buyer—and there are many in the market who need these carbon offset projects to set aside their greenhouse gas emissions. These range from Gucci to Disney to Microsoft to oil majors like Shell. Buyers of carbon credits can buy from various carbon exchanges, like the London-based Carbon Trade eXchange (CTX), or can directly negotiate with project developers. In 2020, oil major Shell launched a joint venture with project developer EKI Energy to develop nature-based solution projects in India. The investment amount, as reported by media, is a substantial $1.6 billion.

What is missing in this market ecosystem are the real owners of the project. These could be a company that owns a solar project or a community on whose land trees have been planted. In this cosy carbon club, there is no real place for such people. And this is where our story begins.

Before this, let’s understand the size of the market, the types of project this market invests in and what we know of the prices.

Of size, projects and prices

As per information available with the Berkeley Carbon Trading Project, together Verra and Gold registries have 6,481 carbon credit projects globally and have issued 1.4 billion credits. According to US-based market research organisation, Ecosystem Marketplace, annual transactions of the market was almost $1.98 billion in 2021 alone.

Carbon credits are issued for two categories of projects—those that avoid greenhouse gases because they allow for switching to clean sources and those that remove, or sequester, the already emitted greenhouse gases from the atmosphere.

Of the 1.4 billion credits (for 1.4 billion tonnes of CO2e) the bulk has gone to renewable energy, followed by forestry and land-use projects. It is important to note that the bulk of projects in the area of nature-based solutions (afforestation) and in household devices (cookstoves) have been issued in countries of the South—because the cost of carbon credits is much lower in these projects and so they are cheap emission offsets for buyers.

The price of the carbon credit is an arrangement strictly between the seller and buyer, and there is no database on what each project secures. A project can get different prices for carbon credits during its lifetime—in other words, the price depends on when the credits are issued, when they are sold or retired, and then on the “market” conditions. As per data available with Carbon Trade eXchange (CTX), the credits in most categories of projects were being sold between $4 and $12 in summer of 2023. It’s about supply and demand—oversupply of credits could drive down the price. But overall, the market is based on the principle of arriving at the lowest cost and does not reflect in most cases the actual cost of the project. This is the fundamental flaw as the credits, in most cases, are a fraction of the project cost, and therefore, only end up benefiting the coffers of the developers and consultants and not the actual owners of the project or leading to the transformation we so desperately need.

The price can vary depending on the technology used in the project. Clean cookstove projects typically sell one carbon credit for $3 to $10. In contrast, direct air carbon capture and storage projects can command from $300 to $1,100 per credit. Most “carbon capture and storage” projects are in the US. Overall, the range of prices is huge—carbon credits generated by a biogas project could be sold anywhere between $1 and $20 per credit—and this speaks volumes about the lack of rules in the market. It also suggests the need for reform so that the price of the carbon credit is based on the actual cost of the project, which, in case of nature-based projects, includes the value of land and the labour of poor communities that these projects are meant to serve.

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