Third of Carbon Credits Lack Stamp of Approval
As the ICVCM attempts to restore trust, renewable energy project methodologies fail to align with high-integrity criteria.
The Integrity Council for the Voluntary Carbon Market (ICVCM) has called on carbon crediting programmes to raise the bar and redesign their methodologies for renewable energy projects to ensure high integrity and quality.
The ICVCM recently announced that carbon credits issued under eight existing renewable energy methodologies failed to meet the criteria of its Core Carbon Principles (CCPs) Assessment Framework, meaning they have not qualified for the CCP label.
The initiative said the methodologies in question were “insufficiently rigorous” in assessing whether projects would have gone ahead without the incentive of carbon credit revenues. The methodologies cover 236 million unretired carbon credits — the equivalent of 32% of the global VCM.
“We have seen a real sea change in the VCM in recent years, with new methods of sourcing data — like remote sensing — [coming to the fore],” Alexia Kelly, ICVCM Board Member and Managing Director of the Carbon Policy and Markets Initiative (CPMI) at the High Tide Foundation, told ESG Investor. “The CCP label is being established at a really important time for the market, as we move towards a global threshold for quality.”
Kelly acknowledged that this most recent decision was a difficult one to make, adding however that the assessment framework is very clear: “you either meet the requirements or you don’t”.
Carbon credits can only be tagged with the CCP label if the carbon crediting programme is approved as ‘CCP-eligible’, and is supported by a methodology that is also ‘CCP-approved’.
The ICVCM also rejected a methodology for projects in the magnesium industry that reduce the release of sulphur hexafluoride (SF6). Meanwhile, it approved a methodology for solutions that detect and repair methane leaks in the gas industry, covering an estimated 19 million unretired carbon credits (2.6% of the VCM).
“We are taking the tough decisions necessary to build a high-integrity VCM that can be scaled to meaningfully fund climate solutions and channel material amounts of finance to the Global South,” said Annette Nazareth, ICVCM Chair. “Renewable energy projects financed by carbon credits still have a role to play in the decarbonisation of energy grids, because it remains challenging for many least developed countries to secure the investment they need to transition away from fossil fuels.”
Still, the design of these carbon projects should be modernised, Nazareth added – which carbon crediting programmes can and should do.
More robust methodologies would also help unlock more private finance to support the scaling of renewable energy projects globally.
The ICVCM has said it is ready to review more rigorous renewable energy methodologies once they are developed.
Debate rages on
Launched in 2021, the ICVCM implemented the (CCPs) to ensure the generation of high-quality carbon credits and facilitate access to climate finance. The label is meant to serve as a seal of approval of the fact that the credit in question does represent a tonne of emissions reduced or removed from the atmosphere.
The latest set of ICVCM assessment decisions took the total number of unretired credits approved to use the CCP label to an estimated 27 million – equivalent to 3.6% of the global market.
“The market has been incredibly welcoming and receptive,” said Kelly. “All actors seem to understand the need for credibility and, as the VCM looks to scale, there’s broad recognition of the fact that things need to change. They need to demonstrate a real commitment to continuous improvement.”
In April, the ICVCM named ACR, Climate Action Reserve and Gold Standard as the first carbon crediting programmes to have met its CCPs.
In parallel, the Voluntary Carbon Markets Integrity Initiative (VCMI) has introduced demand-side rules for entities using carbon credits as part of their decarbonisation strategies and net-zero pledges.
The work of the ICVCM and VCMI has become increasingly important, as public scrutiny of voluntary markets contributed to a 28% decline in volume-weighted average credit prices last year.
The extent to which carbon credits should play a role in corporate decarbonisation strategies, however, has been hotly debated.
Following months of both internal and external scrutiny over SBTi’s decision earlier this year to extend the use of carbon credits to tackle companies’ Scope 3 emissions in the Corporate Net-Zero Standard, CEO Luiz Amaral announced he would be stepping down at the end of July.
The SBTi has since rowed back on its stance, publishing materials clarifying that various types of carbon credits remain ineffective in delivering their intended outcomes. The initiative will announce next year whether corporates can use carbon offsetting to a greater extent to meet their climate targets.
“We are still digesting the SBTi analysis and will be responding in due course,” said Kelly. “[This discourse shows that] we don’t yet have consensus around the role that carbon credits should play in corporate decarbonisation targets. There remains a false sense that carbon credits are a licence to pollute.”
Another perspective is that high-integrity carbon credits in corporate transition plans have a really important role to play in helping accelerate and deliver ambitious climate mitigation goals and targets – both for individual companies and globally.
The global VCM quadrupled in value between 2020 and 2021, reaching US$2 billion. This year, it could reach US$3 billion and by 2030 – US$50 billion.
As such, Kelly highlighted that voluntary markets present an “incredible opportunity” for institutional investors globally.
“Despite what might appear to be a few bumps in the road between here and [net zero], we are confident that private capital has a significant role to play in the transition, and we are excited to continue to help build these pathways for capital to flow through,” she said.
The post Third of Carbon Credits Lack Stamp of Approval appeared first on ESG Investor.