Organisations like Mikoko Pamoja that restore forests like this degraded mangrove forest in Gazi, Kwale County, Kenya, sell carbon credits to companies and individuals, who can then claim responsibility for the removal of emissions via naturally stored carbon. PHOTO/PLAN VIVO.
By CLIMATE CORRESPONDENT
The voluntary carbon market (VCM) is best understood as the global trade in rights to claim responsibility for specific reductions of greenhouse gas (GHGs) emissions, or outright removals of GHGs from the atmosphere.
These rights are traded by companies as tokens known as carbon credits, which can be sold multiple times. Carbon credits are often called “offsets”, but this term is confusing because offsetting means organisations or individuals claiming that credits directly counterbalance their own continued emissions.
According to China Dialogue, the VCM may have evolved over more than two decades, but it is in the past three years that its monetary value has grown most rapidly, hitting US$2 billion in 2021. Analysts have estimated that this could increase to the tens of billions by 2030.
These sums are tiny compared to overall needs for the global transition to net-zero emissions; for comparison, governments worldwide received US$56 billion from mandatory emissions permits in 2021.
But they could still benefit the world’s climate and sustainable development goals. Under the right conditions, carbon credits raise investment for essential elements of any viable global climate strategy.
Carbon credits are generated by activities like protecting forests and wetlands, providing clean cookstoves to households that don’t have access to electricity, and switching to low-carbon forms of agriculture.
Scale varies: credits to date are mostly from local-level projects such as building a wind farm or protecting rainforest on a plot of land, but programmes that take place across a whole region or country are gaining momentum for energy and forests.
Typically, non-governmental organisations such as Verra, Gold Standard, and the American Carbon Registry assess activities, certify those that meet their standards, issue credits on their behalf and track those on a registry.
Challenges for the voluntary carbon market
The VCM has an uncertain future. Carbon credits and companies using them have had some bad press for seeming not to meet the standards they claim, and the past year has seen a gradual decline in credit prices.
However, governance bodies are releasing new standards and guidance throughout 2023 to serve as new “rules of the game” and restore trust among stakeholders and the public.
The challenges associated with ensuring a positive impact on climate and development – commonly referred to as “integrity” – can be grouped into three buckets: the quality of credit supply, credible demand from buyers, and how the market functions.
High credit quality has several dimensions. Changes in emissions must be calculated accurately and account for “leakage”, whereby emissions rise elsewhere. An activity should be “additional”, meaning that it wouldn’t have taken place without credits.
Activities are unlikely to be additional if they are financially viable outside of the VCM or mandated by government policy. Reductions or removals of GHGs should be permanent (in effect, lasting at least several decades).
Finally, there should be no negative impacts on other aspects of sustainable development, such as protecting biodiversity or supporting women’s empowerment – ideally, credits should have positive impacts on these goals. All of these attributes should be monitored and reported transparently, and verified by legitimate third parties, usually provided by specialist firms.
Read the comprehensive report from China Dialogue here.
