Negative PR around corporate offsetting has hurt sentiment in the VCM throughout 2023. However, the world’s climate change targets cannot be met without increased offset use, and with a number of integrity processes underway, demand from hard-to-abate sectors – such as aviation – is expected to return. When it does, supply will not be able to keep up, pushing prices higher.
While the carbon market is already underpinned by rigorous safeguards and standards that ensure each carbon credit represents a verified tonne of emissions reductions or removals, a number of initiatives have been put into action that focus on increasing corporate ambition, ensuring the quality and integrity of carbon markets, and catalysing more supply of and demand for high quality carbon offsets. The three primary initiatives are:
The Science Based Targets initiative (SBTi): The SBTi seeks to drive ambitious climate action in the private sector by enabling organisations to set science-based emissions reduction targets that align with the goal of limiting global warming to 1.5C. It also holds participants accountable to the targets they set through five principles. Under the SBTi, companies must:
- Commit to setting a science-based target, or have an existing targets independently verified;
- Develop a target consistent aligned to science-based criteria the and GHG Protocol;v
- Submit the target for validation;
- Communicate the target publicly and inform stakeholders; and
- Disclose the company’s emissions annually and monitor progress on reaching the target.
The SBTI is seeing accelerated uptake. As of July 2023, the operational emissions (Scope 1 & 2) of the almost 6,000 businesses that have either committed to set or have already set a SBTi target is estimated to be 4.4 billion tCO2e. In addition, corporates with SBTi commitments or verified targets have Scope 3 emissions of 26.6 billion tCO2e, meaning total emissions covered by SBTi is 31 billion tCO2e. This figure has increased 82% in the last year alone.
SBTi’s guidance on offset use (use offsets, but last, and only up to 10%) is commonly cited as confusing and a barrier to scale. In response to broad feedback to that effect, SBTi undertook a consultation process in June and July that saw many respondents demand a change in position to encourage earlier, larger-scale offset use alongside direct decarbonisation. SBTi has committed to release its response, including any revised offsets guidance, before COP28 in November.
The Voluntary Carbon Market Integrity initiative (VCMI): The VCMI was created to standardise and regulate the claims that companies make, both with respect to internal decarbonisation and to the use of carbon credits. The VCMI’s Claims Code of Practice, released in June, is a rulebook on how companies can make voluntary use of carbon credits as part of a credible, science-aligned pathway to net-zero, and make emissions reduction claims related to that pathway.
The Claims Code of Practice defines three tiers of claims that companies can make, in addition to demonstrated progress towards its targets:
- VCMI Silver: requires the purchase and retirement of high-quality credits in an amount equal to or greater than 20%, and less than 60%, of a company’s remaining emissions;
- VCMI Gold: requires the purchase and retirement of high-quality carbon credits in an amount equal to or greater than 60%, and less than 100%, of a company’s remaining emissions; and
- VCMI Platinum: requires the purchase and retirement of high-quality carbon credits equal to or greater than 100% of remaining emissions.
From July 2023, the VCMI will release additional modules to complement the Claims Code of Practice. It will also hold consultations and create the VCMI Stakeholder Forum to guide the ongoing evolution of the Claims Code of Practice.
The Integrity Council for the Voluntary Carbon Market (ICVCM). The Integrity Council for the Voluntary Carbon Market (Integrity Council) is an independent governance body established to set and enforce a definitive global threshold for high-quality carbon credits. In 2023, ICVCM published the Core Carbon Principles Assessment Framework which provides a credible and rigorous means of identifying high-integrity carbon credits. The 10 Principles are organised into three categories:
– Effective governance
– Robust independent third-party validation and verification
– Robust quantification of emission reductions and removals
– No double counting
– Sustainable development benefits and safeguards
– Contribution to net zero transition
The ICVCM will be certifying two critical pieces of the market, certification standards and project methodologies and will begin onboarding projects for approval in the next four months.
The combination of SBTi’s accountability for pledges made, the VCMI’s guidance on offsetting claims made against those pledges, and the ICVCM’s underwriting of carbon offset quality will provide the necessary confidence for companies to enter, re-enter, or scale up their participation in the offsets market.