International insights into the development of the voluntary carbon market

A new research project led by Gaia in a consortium with PTT, Laininen Law and Perspectives Climate Group for the Finnish Government is exploring the evolving international framework for voluntary mitigation action. As a part of this research project, an international expert panel convened for two workshops in June and late September to provide insights on the interplay between regulatory and voluntary initiatives in developing the voluntary carbon market, as well as the role of the state and other actors in stimulating supply and demand.

Increasing interplay between voluntary and regulatory carbon markets aims to improve integrity

In June 2023 Gaia and Perspectives hosted the first workshop for the international expert panel. The focus of this workshop was on the interplay and connections between regulation and the voluntary carbon market. There is also an increasing amount of self-regulation in the voluntary market through initiatives such as the Integrity Council for the Voluntary Carbon Markets (ICVCM) building rules for the quality of carbon credits and the Voluntary Carbon Markets Integrity Initiative (VCMI) focusing on claims organisations can make when using carbon credits. These, combined with the increasing regulation from especially the EU on climate claims and the final negotiations on the Paris Agreement’s Article 6 mechanism, which can also be used in the voluntary carbon markets, are changing the market situation drastically.

The international expert panel agreed that the voluntary carbon credit market can contribute to the achievement of the 1.5-degree goal stated in the Paris Agreement, along with regulatory systems. The voluntary market was seen to play a special role in directing private funding and solving the funding gap for climate action. However, for this to happen, the experts saw that the market still needs more regulation and a more established status of the new voluntary initiatives (such as ICVCM and VCMI), meaning better alignment of best practices throughout the market.  

Furthermore, the different claims made by companies using carbon credits were discussed by the panel. The panel agreed that in case of offsetting claims the mitigation outcomes should not be claimed by both the host country and the buyer of the credit. If the mitigation outcome is contributing to national climate targets, the buyer company should make a contribution claim. According to most experts, both offsetting and contribution claims are equally important, and each type of claim has their own role in reaching national or global targets. However, all claims made should be clear and transparent, as many offsetting-based claims have thus far been somewhat vague and even misleading.

The big unknown: will supply and demand meet, and who makes the market grow?

The starting point for the September workshop was to understand how supply and demand develop in the voluntary carbon market as corporate climate target setting and related use of carbon credits evolves. The workshop opened with a look into the research done thus far, including how voluntary and regulatory initiatives directly and indirectly drive business motivations to engage in the voluntary carbon market, and how this differs between different company types.

The ensuing discussion focused on the role of the state in stimulating or stunting supply and demand in the voluntary carbon market. Unsurprisingly, much of the discussion focused on the role corresponding adjustments have in ensuring that supply and demand can meet – especially in countries like Finland where most mitigation projects are in sectors that are included in national targets. The panel agreed that the role of the state should primarily be to give clear guidance, if necessary even regulation, to guide the markets and endorse international best practices. However, once that guidance is given, the real challenge is in creating an enabling environment where supply and demand can grow and meet. If the guidance is too strict, it is possible that the market cannot develop, if supply is just not available to meet impossibly high standards. Many incentives were debated, including financial ones, but the real need was seen to enhance capacity building of all actors in the market, so that the VCM can become easier to navigate for sellers and buyers alike. The state can truly have an enabling role here as well.

Overall, the workshop concluded with thoughts that while the idea of carbon neutrality and offsetting may be coming to an end in certain markets, rebranding the use of carbon credits as contribution claims does not solve all of the markets’ issues. There must be a consistent effort to ensure best practices across the board, both for the production and use of carbon credits, even if the claim is a contribution claim.

Building these insights into the preliminary results

The results from the workshops will be integrated into the midterm report that is being compiled for the Finnish Government for November.

The preliminary results of the work done so far will be published in a webinar (in Finnish) and blog on November 24th. Stakeholders in Finland will also have a chance to participate in a workshop related to the project on December 12th.

The research project continues right up until September 2024, when the final report will be published. The aim of the project is to provide insights for the Finnish Government on how developments in the voluntary carbon market will influence national commitments as well as stakeholders in the space.

Voluntary climate action and related claims are changing – is your organisation keeping up? | Gaia.fi
The voluntary carbon market is in flux – what is the latest you need to know? | Gaia.fi