We have explored different solutions for companies to contribute to net-zero emissions through various initiatives in our previous reports. The Voluntary Carbon Market is one of the programs that contribute to the achievement of net zero, and it has grown significantly over the years. To enhance its effectiveness, the US has developed its own principles for the voluntary carbon market.

Last May 28, 2024, the Biden administration released its Voluntary Carbon Markets Joint Policy Statement and Principles to ensure high integrity of its voluntary carbon markets (VCMs) given that companies are using carbon offsets to compliment carbon emission reduction efforts or balance out inevitable emissions in pursuit of their net zero goals. The Science Based Targets Initiative (SBTi), which helps companies and financial institutions set emission reduction targets aligned with the Paris Agreement, recently indicated that carbon credits may be allowed in net-zero targets to address Scope 3 emissions. Carbon offsetting is not a straightforward solution to emissions reductions. The effectiveness of the carbon offsets issued is often disputed, as these credit-generating projects do not deliver the positive climate impact or these decarbonization actions shift emissions elsewhere. It is expected that this set of principles will validate the credibility of offsets and encourage greater market participation.

The principles below are applicable to both credit users and credit-generating project owners. Actual report of the Voluntary Markets Joint Policy Statement and Principles may be found in this link.

Principles for Participation in VCMs

1. Certified and genuinely decarbonize

Actual credits and credit-generating activities must meet a robust standard for activity design. Regulators overseeing credit certification standards should verify these activities and issue credits based on approved standards and methodologies. For emissions reductions or removals to be certified through monitoring and reporting, these must deliver on the core integrity principles:

• Additionality - The activity would not have occurred without the incentives provided by the crediting mechanism and is not mandated by law or regulation.

• Unique - Each credit corresponds to a single tonne of carbon dioxide reduced or removed from the atmosphere and is not duplicated or double-issued.

• Real and Quantifiable - Claimed emissions reductions or removals reflect genuine atmospheric impact verified through transparent, replicable, robust, and credible methodologies.

• Validation and verification - Activity design is validated, and results are verified by a qualified, accredited, independent third party.

• Permanence of GHG benefits - The emissions that are removed or reduced will be sequestered for a specified period. Any credited results released back into the atmosphere during this time must be fully remediated.

• Robust baselines - Emission reduction and removal activities should establish rigorous baselines to prevent over-crediting. They must prioritize performance benchmarks and adapt over time to align with advancements in climate policy, emissions pathways, and decarbonization practices and technologies.

2. Avoids environmental and social damage

Safeguards for credit-generating activities shall be established to prevent potential adverse impacts on people and the environment such as food insecurity or destruction of nature and biodiversity. These projects should also be designed and implemented with the consultation of relevant stakeholders and adhere to Free, Prior, and Informed Consent. Co-benefits associated with these projects are also encouraged but must be verified.

3. Emissions reduction reflected across company value chains

Credit users are obliged to compensate for emissions throughout the value chain as part of their net-zero strategies. This includes regular reporting of Scope 1, 2 and 3 emissions, including short-term and long-term emission reduction targets and transition plans. Wherever possible, companies should also work with their suppliers on efforts to decarbonize.

4.  Publication of the type of credits purchased and retired

Credit users must disclose if credits purchased and retired are of high integrity and avoid negative environmental and social impact on an annual basis. Format must be optimized that will allow stakeholders to review information and compare across other credit users when published.

5. Accurate climate impact claims

Published claims should be based on the impact of credits that meet current high integrity standards and avoid negative impacts. They should also be reported in the context of a corporate climate strategy that emphasizes emissions reductions within the value chain. Claims cannot be based on credits that have been cancelled, inflated, or found to lack environmental and social safeguards.

6. Continuously enhance market integrity

 Stakeholders must constantly develop market functionality in relation to creating incentives for developing and purchasing high-integrity credits, ensuring fair distribution of revenue, expanding transaction volumes and prices, improving transparency of information on credit-generating projects, and managing potential conflicts of interest among VCM service providers.

7. Accelerating efficient market participation

Policymakers and VCM service providers should address barriers to entry for farmers, ranchers, forest owners, small businesses, developing country districts, and others as credit-generating suppliers and ensure the production of high-integrity credits. Credit users should also explore methods to improve market certainty for credit providers making long-term and substantial investments in decarbonization.

How can we make the voluntary carbon market a feasible solution for reducing emissions

The global voluntary carbon market has experienced steady growth yet concerns persist regarding the quality of offsets it offers. As climate reporting becomes standard practice, companies are urgently seeking emission-reduction solutions to meet climate targets. Given that the VCM is one available method, how can regulatory agencies and policymakers ensure its effectiveness in reducing carbon emissions? In addition to the aforementioned principles, here are some recommendations to further enhance them:

Credit-generating projects:

• Ensure Accuracy in Reduction: For project owners, aside from meeting the standards set as mentioned above, invest in advanced AI technology that will enable precision and accuracy of carbon emission reductions to gain more confidence among credit buyers.

• Reduce Barrier to Accessibility: Once project owners are verified by Verra and other regulatory boards, governments can support the accessibility of small project owners. This can be achieved through platforms like conferences, where project owners can showcase their initiatives to potential companies.

• Promote Results Transparency: Credit-generating project owners should also provide and publish reports detailing the outcomes of their projects in reducing carbon emissions

Credit users:

• Invoke Responsibility: The government can mandate the purchase of carbon offsets from a recommended list of carbon-generating projects as part of ESG reporting. They can target potential projects to be the recipient of voluntary carbon market capital flows as well.

• Induce Collective Effort: Encourage individuals and consumers to invest in carbon credits that emit a specific amount of carbon through partnerships with credit-generating projects.

• Accountability for Shortcomings: Follow Japan’s GX League model by requiring companies to set emissions reduction targets, as supported by the SBTi. Companies failing to meet targets must disclose reasons and purchase carbon credits for the shortfall, mandated by the government.

• Embrace Long-term Commitment: Encourage companies to engage in long-term purchasing agreements with high-quality projects that create significant positive environmental impacts through carbon offsets.

The Voluntary Carbon Market (VCM) holds significant promise for enabling companies to contribute to reducing carbon emissions. However, the integrity of carbon credits has faced scrutiny from critics. The US has made strides in establishing principles to enhance the credibility of carbon offsets and ensure fair practices, but additional measures may be necessary to reinforce its viability as a solution. With the cooperation of various stakeholders, we can advance the progress of carbon reduction through the voluntary carbon market and ensure a sustainable future ahead. For companies and individuals seeking guidance on how to begin investing in carbon offsets, GreenEco Investments can help you get started on the right path. Reach out to us today.