Back 12.04.2023

The voluntary carbon market is in flux – what is the latest you need to know?

Voluntary carbon markets are changing quickly. Between regulatory change over how to make carbon neutrality claims to guidance that aims to set a common bar for carbon credit quality, there is a lot of keep track of. Here’s some of the latest updates.

How to identify high-quality carbon credits?

The Integrity Council for the Voluntary Carbon Market (ICVCM) is working to reduce one of the main sources of grief that many have with the market: the varying quality of carbon credits. In March, the Council released its Program-Level Assessment Framework, which is a key part of its Core Carbon Principles (CCPs). This part of the CCPs aims to create a common understanding of quality for the programs that issue carbon credits. The contents of the published Assessment Framework were not much of a surprise, including criteria for e.g. the governance of programs, tracking (ie carbon credit registries), impact quantification and ensuring sustainable development benefits and safeguards. One highlight was that the requirement that credits must be based on actualized mitigation outcomes – in other words, so called ex-ante credits, where the mitigation outcomes (such as carbon capture) has not happened yet, would not be CCP eligible.

For those looking to understand how quality standards are evolving, the ICVCM’s Category-Level Assessment Framework, expected later this year, will be one to look out for. This Assessment Framework will focus on the quality criteria for the carbon credits themselves, and likely strongly influence how buyers evaluate their future offsetting portfolios.

Making claims based on the use of carbon credits

For those using carbon credits to make claims, the most significant update comes from the European Union. In March, the EU released a proposal for a directive on the substantiation and communication of environmental claims, also known as the Green Claims Directive. This draft directive should be watched by anyone working with environmental marketing and especially those currently capitalizing on carbon neutrality in their branding. Regulating advertising and marketing is nothing new to the EU, which has already outlined principles for environmental claims in the Directive on Unfair Commercial Practices (UCPD). So, what’s new?

The UCPD addresses claims more generally from the perspective of clarity, accuracy, and appropriateness. The Green Claims Directive, in comparison, goes further into the methodologies and evidence behind the claims. For carbon neutrality and other offsetting-related climate claims, the Green Claims Directive will require more transparent communication on what lies behind the claims. This includes, for example, information about the type and quality of the carbon credit purchase and what share of the carbon footprint is covered by credits. In addition, the draft directive calls for companies to prioritize their own emission reductions when making claims related to the company’s future performance, and for the use of high-quality carbon credits.

And the fun doesn’t stop there. Later this year, the Voluntary Carbon Markets Initiative (VCMI) is set to release its guidelines for making claims based on the use of carbon credits. The EU draft directive for certifying carbon removals is also moving ahead – the draft directive was released in late 2022, and the EU Carbon Removals Expert Group’s inaugural meeting took place in March. The Expert Group is assisting the Commission in creating the framework for the legislation as well as putting together the methodologies that the directive will work under to certify carbon credits.

What does all this mean for actors in the market?

For those producing carbon credits, the guidelines are tightening. Those players that can keep up will reap the rewards, possibly in the form of high prices as well as higher levels of trust from both buyers and consumers alike. For companies looking to use credits as part of their own climate strategy, keeping up with the changing requirements, especially for making claims and related reporting, is crucial. It is likely that in the next few years, we’ll see companies who have previously rode the wave of carbon neutrality having to backtrack, or at the very least, improve the foundation on which those claims are made.

For the Finnish market, a good resource to turn to is the Ministry of Environment’s and Ministry of Agriculture and Forestry’s guide to good practices for the voluntary carbon markets (a project led by Gaia). The Finnish version was released in February, and in March the Ministries released the guide in English. The guide outlines good practices for producing credits as well as using credits to make claims. The guide summarizes international good practices with a focus on applying these to the Finnish context. For those just getting to know the voluntary carbon market space, there is also a summary of these good practices, written with consumers in mind.

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