The Voluntary Carbon Market (or “VCM” for short) has enormous potential – and real challenges that are being actively overcome. With a backdrop of a multitude of “exposes” denigrating VCM carbon credit quality, over 800 climate and carbon professionals gathered last week at the North American Carbon World Conference in Anaheim, California, for the first major carbon conference of 2023.
Flowcarbon was present, engaging with key stakeholders to maintain a pulse on the market and positively influence its evolution. After meeting with dozens of market participants and attending stimulating discussions, Flowcarbon is more confident than ever in the future of the VCM. You can read our Top 5 Takeaways from NACW below:
Over 40 new methodologies are formally under development in the largest carbon standards bodies, with countless more happening “off-registry” (especially new carbon removal methodologies, many of which are working directly with an ISO Standard due to lengthy approval timelines with the major standards). Validation and Verification Bodies – whose role it is to audit projects to verify that they deserve to be issued carbon credits – are needing to turn down work due to a lack of bandwidth to satisfy overwhelming demand. Major carbon developers are expanding to new jurisdictions and investing significantly in new project development. While VCM credit demand may currently be in a slight holding pattern as important international guidance is finalized, the “boots on the ground” are actively laying the foundation for rapid and dramatic growth.
Last year, the VCM issued 279 Megatonnes worth of carbon credits out of a total of 36.8 Gigatonnes of emissions globally. That’s less than 0.8% of global emissions! While the VCM will never match the importance of compliance markets, it was universally acknowledged by panel after panel that the VCM is a compelling vehicle to facilitate corporate investment in carbon reduction activities in addition to a corporation's net zero pathway. There is also a widely held belief that the pendulum has swung too far toward the focus on removal credits – and that it is “enormously counterproductive” for anyone to believe that corporations should not offset their emissions until they reach full decarbonization. Expect “corporate claims” guidance from entities such as the VCMI and SBTI later this year to find credible yet innovative approaches to encourage corporates to invest in carbon credits.
There is wide agreement that recent media articles have unfairly targeted the VCM–with leading market participants calling for the VCM to band together and adopt an offensive rather than defensive posture regarding the important role of the VCM. Over the past two decades, as one panelist put it, VCM participants started “a weird experiment and built a market” now ready for a mass infusion of capital. Market participants had to invent new approaches to measuring carbon reductions, and have been continuously learning, and improving over time, utilizing new technologies, better science, and strengthened methodological requirements. It is this lack of context of a natural evolution of the “scientific process” the VCM has been going through – along with occasional cherry picking of poor examples and not providing sufficient exposure to counterarguments - that was widely frowned by NACW panelists. Look for VCM leaders to more prominently communicate the good and important work the VCM does to do our part to save the planet - as continuous improvement in methodologies and guidance from the ICVCM helps solidify the VCM’s reputation.
With Article 6 of the Paris Agreement giving each nation more clear and compelling rights over their carbon assets, one panelist described this period as a “great source of opportunity and chaos”. While some countries such as Indonesia, Zambia and Honduras take aggressive steps to pause or take a significant cut of VCM activity, others are proactively planning for more investment-friendly approaches to secure critical inflows of capital. Market leaders anticipate 3-4 generic models of how countries engage with the VCM to emerge over the next year or two. When making long-term commitments to carbon projects, be sure to consult legal counsel and consider the optimal approach to risk mitigation.
Insetting is the process of utilizing a prescribed approach to measure and track a carbon reduction that happens within a company’s value chain so that the benefits can be appropriately captured (see here for a full primer). For many important global industries–such as food & agriculture, aviation, transport, apparel and construction–this innovative approach to reducing internal Scope 3 emissions is likely to play a critical role in corporate decarbonization efforts. Verra has already spent a full year doing detailed stakeholder engagement, and has recently kicked off a program development process with the aim of having a comprehensive program available in 2025. SBTI began a review of its Scope 3 guidance in 2022 and will continue its review throughout 2023. To learn more about how you can get started today, see the Value Chain Initiative - a multistakeholder forum to collectively define how to address and account for GHG emissions reductions across global value chains that has detailed guidance to help stakeholder kick start action.