What are the Voluntary Carbon Markets?
The Voluntary Carbon Markets have been around for about twenty years, but have never really taken off. That’s going to change in the next few years, with the market estimated to grow to $50 billion by 2030.
Support for the VCM is growing in some countries. In May, high-level public officials from various US Federal departments endorsed the VCM as a critical tool to combat climate change, emphasizing high-integrity carbon credits as the cornerstone for an effective VCM at scale.
What do the Voluntary Carbon Markets Do?
The Voluntary Carbon Markets (VCM) are used voluntarily by organizations, and individuals to offset emissions that they can’t currently offset.The VCM is different from the European Emissions Trading Scheme (EU ETS). The EU ETS is a mandatory compliance mechanism. It mandates that emitters of CO2 must present a valid ETS certificate for each ton of CO2 they emit. If the CO2 emission exceeds the amount of allocated certificates of a plant, operators have to buy certificates in the emission allowance trading.
Whilst organizations are doing a lot of stuff to reduce their carbon footprint, from switching to renewable energy sources, to reducing travel needs through Zoom calls, to using more novel, and less carbon intense materials for building, it often isn’t enough. But after, they’ve expended these options, there may still be some residual carbon that they haven’t been able to mitigate or offset. That’s where the VCMs come into play.
The Voluntary Carbon Markets allow organizations access to ‘offset’ their activities by purchasing ways to reduce carbon often elsewhere in the world. They’re used by large organizations, like Google and Disney and many others to offset their emissions. This can include buying carbon credits for offset projects that plant or protect nature / trees, fund Carbon Capture Utilisation and Storage activities, and that provide community benefits.
Here’s an introductory video by the S&P:
But how do you ensure confidence that these carbon credit offset projects are actually doing what they are saying that they’re doing.
Well, there are a handful of organisations that ‘gate-keep’ these markets. They are called Carbon Standard Setters; the most prominent of which include:
Verra
Climate Action Reserve
Gold Standard
American Registry
REDD+
These carbon standard setters are bodies that make sure that different companies don’t purchase the same credits for the same carbon offset projects, and are supposed to make sure these projects add true carbon offsetting benefits.
But, there have been some challenges. In 2023, one of these standard setters Verra went through a scandal. It was reported in the Guardian that 90% of carbon credits that targeted rainforest projects were worthless. It led to a change in the leadership and board at Verra and was a wake-up call to the industry that things were going wrong.
What were the challenges in the VCM?
This video by John Oliver for the program ‘Last Week Tonight’ highlights some of the challenges. And, these challenges lower the confidence that organizations have in in using the VCM to offset their carbon emissions.
In short the following are commonly discussed concerns:
Transparency: A major critique of carbon markets is the lack of transparency. Often, detailed information about carbon projects is scarce, making it difficult for buyers to assess how their investments translate into real climate action.
Credibility: The credibility of carbon credits is frequently questioned due to unreliable information about carbon removal projects, often resulting from the inconsistent application and lack of rigorous monitoring, reporting, and verification (MRV) practices.
Environmental and social impacts: The actual environmental and social impacts of carbon projects are often under-examined. This oversight can lead to scepticism regarding the efficacy and fairness of these initiatives, especially in their effects on local communities and biodiversity.
Increasing public criticism of greenwashing: Public criticism and legal action over greenwashing claims deter companies from participating, even when acting in good faith.
Lack of clear guidance: The specific role that the VCM will play in achieving net-zero targets remains uncertain. Lack of guidance from internationally recognized market initiatives such as the Science Based Targets initiative (SBTi) on how companies could effectively incorporate CDR into their net-zero strategies has created additional uncertainty in the market
What’s Being Done About It?
Effort is underway to improve trust and incentivise the use of the markets. For example the Science Based Targets initiative is currently reviewing the validity of using the VCM to offset Scope 3 emissions.
The role of Carbon Setters, whose job it was to ensure integrity of the VCM, is also changing. There is now more emphasis on monitoring, verification, and quality of credits.
And, perhaps foreseeing the systemic issues caused by the lack of governance surrounding carbon credit standard setters, the Integrity Council for the Voluntary Carbon Markets (ICVCM) was created in 2021. In January 2024, one year after the Verra scandal, the ICVCM announced that it would assess 100 carbon credit methodologies to ensure integrity, and would seek to develop a benchmark. The ICVCM also developed ten Core Carbon Principles (CCPs), which are intended to act as a seal-of-approval for carbon projects, thereby attempting to create both accountability and integrity of credits. these principles are intended to act as a guardrail and are:
Additionality
Permanence
Robust Quantification of Emission Reduction and Removals
No double Counting
Effective Governance
Tracking
Transparency
Robust Independent Third Party Validation and Verification
Sustainable Development Benefits and Safeguards
Progress Towards Net-Zero
Reforms in the Voluntary Carbon Market (VCM) are boosting credibility by enforcing stringent standards on carbon credit quality, monitoring, and verification through initiatives like the Core Carbon Principles (CCPs) from the Integrity Council for the Voluntary Carbon Markets (ICVCM). These improvements aim to enhance accountability and ensure genuine emissions reductions, making the VCM a more reliable tool for companies’ net-zero strategies.
Conclusion
In conclusion, the Voluntary Carbon Markets (VCM) are poised for significant growth, driven by increased recognition of their potential to support global sustainability goals. However, for the VCM to truly thrive, key challenges around transparency, credibility, and greenwashing must be addressed. Efforts to enhance governance, such as the establishment of the Integrity Council for the Voluntary Carbon Markets (ICVCM) and its Core Carbon Principles, signal a promising shift toward more rigorous standards and accountability. As stakeholders, including businesses and regulatory bodies, continue to refine these markets, the VCM may become an integral tool in global decarbonization efforts, enabling organizations to responsibly manage and offset their emissions. Strengthening these markets will not only build confidence in carbon credits but also bolster the effectiveness of carbon offsets in achieving real and measurable climate impact.
