How the proposed new standards aim to lend credibility to the multi-billion dollar carbon offset market

There’s a lot to be said for an independent body’s efforts to inject a healthy dose of credibility into global carbon markets with the aim of making them a force in the fight against climate change.

Earlier this month, the Integrity Council for the Voluntary Carbon Market, or ICVCM, launched a 60-day public consultation for its draft carbon fundamentals. This is the organization’s set of standards for ensuring that the market has a steady supply of high-quality carbon credits and for determining which programs to generate them must be successful.

There is no doubt that the global problem is difficult: the United Nations Environment Program has declared that annual greenhouse gas emissions will have to be cut by almost half to 32 billion tons by 2030 s there is the slightest hope of limiting the average temperature increase by 2050 to 1.5. C above pre-industrial levels.

Carbon offsets, from which credits are derived, are not a miracle solution to achieve this, and not everyone is convinced of their effectiveness. Some environmentalists accuse industry of using them as an excuse not to spend the capital needed on technology to reduce greenhouse gases.

However, the financial world sees the voluntary carbon market as a type of ammunition in the battle to limit temperature gains, alongside companies that decarbonize their operations. And to work, it needs to be structured in a way that inspires trust among buyers and sellers. The trick will be to foster a market large enough, liquid and trustworthy enough to attract big institutional capital.

“Without a unifying standard, voluntary carbon markets would remain small and fragmented; it would be much more difficult to ensure the credibility of carbon credits,” said Sonja Gibbs, a member of the IVCCM board of directors as well as managing director and head of sustainable finance at the Institute of International Finance, based in Washington, in an email. .

“The credibility of the supply of carbon credits is essential to market construction and the accurate pricing of credits.”

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Finalizing the carbon fundamentals is a big deal in the quest to direct tens of billions of dollars toward carbon sink and carbon removal projects that could reduce up to 2 billion tons of carbon emissions. 2030. One of the goals of the effort is to promote projects in the developing world, where government-run or “compliance” markets are rare and the need to protect natural areas is acute.

Over the next 7 1/2 years, trade in credits for carbon offsets will need to grow to US$50 billion a year from about US$1 billion today to meet the targets, Mark Carney, former governor of the central banks of Canada and England, said. Mr. Carney, the UN special envoy for climate action and finance, led the task force whose work was the basis for the creation of the ICVCM last year.

Voluntary carbon markets have existed for many years, but have been prevented from becoming a major force in reducing carbon dioxide emissions due to a combination of factors including fragmentation, lack of consistent standards and fear that buyers will spend money. on poor quality offsets or offsets that have been counted twice.

Core principles of carbon advice include requirements such as additionality – or proof that a forest or other carbon sink, for example, would have disappeared without the investment supporting the credits – as well as confirmation that a project’s greenhouse gas reductions are counted only once.

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In addition, the credit program must include effective governance to ensure the transparency and quality of the credits offered, and there must be a registry to record and track both emission reduction activities and credits so that they can be safely identified. Offsets will require quantification of the carbon removal using scientific methods and will need to be subject to third-party verification.

On the ledger front, a consortium of global banks, including institutions such as Canadian Imperial Bank of Commerce, National Bank of Australia, UBS and Standard Chartered, has launched a blockchain-based system to record and track transactions. . The company, called Carbonplace, will act as a transaction network for voluntary markets – almost like a carbon version of the SWIFT payment system in international finance.

Of course, companies will have to go beyond offsets to achieve what is needed to meet climate goals. In an effort to prevent greenwashing, another group, the Voluntary Carbon Markets Integrity Initiative, has released a code that requires companies to show they prioritize reducing their own industrial emissions before offsetting what they cannot reduce.

However, many industries will need both time and major investments in technology to accomplish what is necessary to remove greenhouse gases from their own operations, so voluntary carbon markets will be a ” vital element” in the race for the necessary emission reductions, Ms. Gibbs said.

In the meantime, an efficient market will help set a global price for carbon, while helping to provide financing for the technology that will be needed to achieve the ultimate goal of decarbonization.

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