Best practices for voluntary carbon markets

Insights from a Nordic COP28 side event
Event Overview

In a Nordic COP28 side event “Voluntary Carbon Markets: Latest Developments in Best Practices”, a panel of public and private sector experts reflected on the evolving role of voluntary carbon markets (VCM) in the context of the Paris Agreement. The panel included Owen Hewlett from The Gold Standard Foundation, Malin Ahlberg from the German Ministry of the Environment, and Teppo Säkkinen from the Finnish Chamber of Commerce. In addition, David Rademacher of the international energy company E.ON shared private sector views from the floor. The discussion was moderated by Juliana Kessler from Perspectives Climate Research. The event was organised at the Nordic Pavilion by Perspectives Climate Research, under the Nordic project on building capacity for the VCM, funded by the Nordic Council of Ministers.

Setting the scene

To set the scene, Juliana provided an overview of the Nordic Code of Best Practice for the Voluntary Use of Carbon Credits and other key initiatives on VCM integrity and introduced key concepts such as the action and ambition gaps, and offsetting and contribution claims.

Before kicking off the panel discussion, the audience was invited to share their views (via an online poll) on the role of VCM, specifically whether it has a role in supporting countries in meeting national targets, aid global ambition beyond national targets, or both. The majority (71%) favored the dual role for VCM, with 19% calling the VCM to focus on global ambition-raising and 10% on aiding national targets. Most poll respondents considered that best practices for the VCM were “somewhat” clear.

What role for the VCM?

On the role of the VCM, all panelists were of the view that VCM could and should have a role in both supporting the achievement of national targets and raising global ambition beyond them. Owen noted the need for further guidance on when the use of VCM contributes to one or the other purposes and what companies can say in each case. Malin raised the question of whether the VCM should shift focus to supporting national targets if and when these targets become more ambitious over time. Teppo highlighted that the VCM’s role depends on the context. In the EU, for example, the VCM could focus on voluntary action in areas such as agriculture and carbon capture and storage to contribute towards the EU targets.

Integrity vs effectiveness

The panelists noted the vast number of initiatives, standards, guidance, and statements on VCM integrity and best practices. Owen highlighted the key role of Paris Agreement’s Article 6 in shaping best practices also for the VCM, and welcomed the work of the Integrity Council for the Voluntary Carbon Market (ICVCM) on developing a quality threshold for carbon credits. On claims, he called for more work to strengthen the guidance. Malin highlighted the G7 Principles of High Integrity Carbon Markets and the EU Call to Action for Paris Aligned Carbon Markets, which provide a holistic approach for compliance and voluntary carbon markets. A key question to ask is whether the use of carbon credits triggers transformation on the demand and supply side. Teppo stressed the importance of ensuring high integrity and called for clearer international and national guidance on claims, noting that small- and medium-sized enterprises (SMEs) struggle with the VCM requirements. His views were echoed by David who described the challenges of SMEs and even larger companies find it in navigating the VCM’s complexities. Distinguishing between the integrity of carbon credits and claims relating to their use, David told that conducting due diligence on carbon credit quality is especially demanding for companies. Consequently, many companies are leaving the market at a time when more finance is urgently needed to accelerate climate action.

Owen noted that efforts to ensure VCM integrity have made the market so complex that it risks becoming ineffective for its original purposes, that is, serving as a tool for companies to take responsibility for their unabated emissions. He identified the use of carbon credits for offsetting as the main reason for these complexities.

The panelists also reflected on the roles of the public and private entities. Malin identified the provision of recommendations and leading by example as the main roles of governments. She also noted that while common international standards are key for carbon credit integrity, the integrity of claims could be regulated at the jurisdictional level. Owen suggested that the public does not trust governments nor the private sector to ensure VCM integrity, and called for credible NGOs to take a leadership role in this space. Teppo recognised that governments have an important role in regulating claims and developing Article 6 rules, which serve as a valuable benchmark also for the VCM, including for contribution claims. Non-state organisations, such as the Finnish Chamber of Commerce, can play an important complementary role in guiding companies.

Offsetting and other models for taking responsibility

Turning to the use of carbon credits for offsetting claims, such as carbon neutrality, the panelists were not in favour of banning offsetting altogether. Malin said that, while the EU is planning to ban product-level carbon neutrality claims, Germany supports maintaining company-level carbon neutrality claims to incentivise a race to the top. Owen noted that offsetting is a logical model for taking responsibility for unabated emissions and banning offsetting would not remove this responsibility. This said, he acknowledged that offsetting is technically extremely difficult, and may not be worth the associated complexity and reputational risks. He warned that backing away from offsetting could lead to less voluntary support for climate action, unless attractive alternatives to offsetting were available for companies. Teppo argued against excluding offsetting from the toolbox, stressing its role in channeling private funds into climate action. He also considered the potential to raise global ambition via contribution claims, if they succeed in accelerating climate action that, in turn, enables countries to adopt more ambitious targets. David called for a focus on short-term emission reduction targets and the complementary use of carbon credits in addition to such targets.

Take-home messages

The event provided rich insights on the extensive efforts to safeguard the integrity of the VCM in the Paris era. Panelists agreed that the VCM can have an important role in channeling private finance into climate action needed to bridge the gaps between current action and national targets, as well as current targets and the pathway to our collective goals. They recognised the need to strike a balance between integrity and pragmatism, so that the VCM could serve as a credible and usable tool for taking responsibility for unabated emissions. They also agreed on the key role of both public and private entities in promoting VCM integrity and effectiveness, and the importance of public-private collaboration in helping companies navigate the complexities of VCM.

The recording of this event can be found here.

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