Can carbon markets help us to reach Net-Zero?
The History of Carbon markets
The first carbon offsetting market, the United Nation’s clean development mechanism (CDM) was established under the 1997 Kyoto Protocol.
More than 8100 projects in 111 countries have registered to the scheme, amounting to 2 billion carbon credits representing 2 billion tonnes of carbon dioxide reduction or avoidance.
Of these projects around 45% were awarded to a handful of projects mainly in Asia for cutting industrial gases.
However, there were concerns over the integrity of these credits which were cheap to generate. The result was the European Union deciding to ban their use for compliance in its Emissions Trading System (ETS).
With no clear signals about the future marketplace for CDM credits, prices crashed to levels below 1 euro per tonne in 2013 where they have remained.
Voluntary Carbon Markets
Recent years have seen the voluntary market grow significantly, McKinsey estimates that 95 million tons of carbon-dioxide equivalent (MtCO2e) were retired in 2020.
The voluntary carbon offset market differs from compliance, or cap-and-trade schemes, enshrined in law, such as the EU ETS, which set a finite carbon budget and allow emitters to trade allowances.
Buyers in the voluntary market are mainly corporate clients seeking to meet internal targets to reduce their carbon footprint.
However, the market has been increasingly scrutinised, for its role in corporate greenwashing, the recent high profile Verra case has cast doubts over the sector.
Research found that 90% of Verra’s rainforest offset credits (most common credits) were “likely to be phantom credits and do not represent genuine carbon reductions”. 94% of the credits had no benefit to the climate and that threats to the forests where projects were based had been “overstated by about 400% on average”.
Despite the growing doubts, some people believe carbon credits are crucial in creating the required negative carbon emissions to meet net zero.
Guidance for carbon markets
Codes of practice are being developed and introduced for voluntary carbon markets, however the confidence in the market is suffering.
There are a number of initiatives being established to create an effective voluntary carbon market:
Tropical Forest Credit Integrity (TCFI)
To create guidance for the climate credits, eight major NGOs launched new guidance to the TCFI Guide. It is a comprehensive step-by-step guide for companies to follow when investing in tropical forest carbon credits to fight climate change to help move the market towards credits with high social and environmental integrity.
The guide also calls for due diligence on the part of companies to ensure the credits they purchase will result in climate gains. The guide stresses the importance of including indigenous people and communities in the decisions about offset efforts.
The Taskforce on Scaling Voluntary Carbon Markets is a private sector-led initiative working to scale an effective and efficient voluntary carbon market to help meet the goals of the Paris Agreement.
In January 2021, the Taskforce published its blueprint on creating a large-scale, transparent carbon credit trading market. The blueprint includes 20 recommended actions under six key topics for the scaling of existing voluntary carbon markets.
The VCMI is a multistakeholder initiative which aims to ensure carbon markets deliver the levels of mitigation and sequestration needed. It released its provisional Claims Code of Practice for stakeholder input in June 2022
VCMI’s new Provisional Code will provide businesses with a methodology by which climate claims relating to offsetting can be categorized as Gold Silver or Bronze.
BeZero Carbon is a global ratings agency for the Voluntary Carbon Market. Similarly to VCMI Bezero has adopted a carbon credit rating scale. Scores now range from the “highest likelihood” AAA rating to the “lowest likelihood” D of a tonne of CO2e avoided or removed along an eight-point scale.
The scoring from BeZero uncovered a common problem with the voluntary carbon market; only 15% of the projects rated have been assigned an A rating or higher.
Read more on Firstplanit
Check out our article on how severe UK fines could now be imposed for misleading greenwashing claims.