Zelal Aktas
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How To Instill Integrity in the Voluntary Carbon Market

Jun 8 2022 | 9 MINS READ

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Key Insights:

  • The private sector must finance and help scale NbS, the Voluntary Carbon Market (VCM) provides a great opportunity to get the required funding.
  • Nature-based Solutions (NbS) need to play a key role in making up to 30% of the decarbonization targets by 2030.
  • The VCM can only have such an impact on climate change if it’s treated with integrity above all else.
  • There’s a mix of general problems limiting the scaling of the VCM.
  • Projects struggle with access to funding opportunities from the private sector
  • goodcarbon is designed to bring greater integrity to the VCM, to provide the financing schemes required by NbS to scale up.

“It’s apparent that the world will need a voluntary carbon market that is large, transparent, verifiable, and environmentally robust.”

McKinsey & Co.

To reduce the Earth’s global warming to 1.5°c, we must achieve a net reduction of our greenhouse gas emissions by 50% by 2030, and 100% by 2050 (IPCC Report). Considering the above statement, it is clear that these targets will only be achievable with the ‘buy-in’ and concrete actions of governments, companies, and individuals.

These targets clearly aren’t small targets, but there are positive indications that governments and companies are waking up, albeit belatedly, to the gravity of the scenario. For instance, 3,091 companies have now made climate pledges and signed up to the Science Based Targets Initiative (SBTi), a partnership that drives climate action in the private sector by enabling the setting of science-based emissions reductions targets. Of the companies signed up to the SBTi, 2,253 (68%) have targets that are 1.5°c aligned, while 78% of validated targets include scope 3 emissions. These emissions are activities the company indirectly impacts in its value chain, e.g. – transportation and distribution of goods. Read the full SBTi report here.

You can read more about the important role Nature-based Solutions have to play in our previous article here. 

 

bud growing out of cracked soil

 

What is the Voluntary Carbon Market?

While these numbers are promising, of course, the overall goal remains to avoid all greenhouse gas emissions. However, it isn’t feasible for companies to immediately reduce their emissions by 90% tomorrow. Therefore, to achieve this reduction they should begin utilizing the VCM to remove emissions today that they cannot reduce. The VCM enables the voluntary trading and purchasing of carbon credits for private individuals, companies, and actors outside of mandatory pricing systems. Each credit in the VCM represents one ton of carbon dioxide equivalents (CO2e) that is sequestered by different kinds of projects, e.g. – mangrove restoration, afforestation, regenerative agriculture, and many more types.

In contrast, the Compliance Carbon Market (CCM) is where carbon allowances are regulated or traded by national or international regimes, e.g. – the EU Emission Trading System (ETS), the world’s first system of its kind. Allowances in the EU ETS do not have an underlying avoidance or removal in place,  they are allowances a company must have to be able to emit CO2, where one allowance equals the permission to emit one ton of CO2.

When companies emit more CO2 than they have allowances for, they have to pay a fine for each ton they over-emitted. The credits in the CCM, like the credits in the VCM, represent CO2 removal, reduction, or avoidance. In some regional compliance markets, companies can use these compliance credits to make up for the tons of CO2 they emitted beyond their allowances, such as in the Californian, Mexican, and Chinese Emissions Trading Systems.

In this article, we focus on the issues facing the VCM, where it can be improved, and how goodcarbon wants to add greater value. This is chiefly done by promoting standardization and transparency and improving the value of NbS through financing high-impact projects.

 

Image of a river flowing through a dense forest

 

Why the Voluntary Carbon Market Needs to Scale

While many countries have made pledges to reduce their carbon emissions as part of the Paris Agreement, such promises remain majorly empty and unstructured with little discussion or crucial decisions being taken on how the targets will be achieved.

It is evident that countries cannot, at the current rate of progress, save the planet alone. It must be recognized that companies and the private sector have a major responsibility to the environment. For instance, it is estimated that 100 oil and gas companies are responsible for more than 70% of CO2 emissions since 1988 (CDP, 2017). Therefore, it is imperative companies not only contribute and reduce their emissions, but also use the VCM to remove any remaining unavoidable emissions and are transparent about their progress, results, and learnings. Additionally, companies can further support countries by influencing and shaping policy decisions.

Thus, it is clear the VCM is necessary. The market can be an effective instrument that enables projects to receive the funding they require, to launch Nature-based Solutions (NbS), while providing companies the means to balance their unavoidable carbon emissions and achieve a net-zero target. However, the VCM is not limited to just supporting NbS as it also helps to finance other project types such as energy and direct air capture.

But the VCM also faces several challenges that decrease the effectiveness and trustworthiness of the system. With the demand for carbon credits expected to increase by a factor of 15 by 2030, the scaling and development of Nature-based Solutions are required, and fast (McKinsey & Co., 2020).

However, there are legal, educational, and financial challenges to deal with that are the result of projects being in many countries in what is a fast-developing market with complex and costly validation methodologies and a large variety of sales channels. For instance, a mangrove restoration project owner may understand the inner workings of their project, but how the carbon market operates totally differs.

Additionally, there are long lag times between initial investment and sale of credits, poor verification methodologies, transparency, and accounting. On the buyers’ side, many companies simply claim they are ‘net-zero’ or ‘climate neutral’ without prioritizing their own carbon emissions reductions. Ultimately, to achieve the climate targets, carbon emissions must be, first and foremost, significantly reduced instead of just offsetting them by buying carbon credits without any reductions.

There is also the issue of ‘double counting’ meaning the same carbon emission or removal is claimed by two different parties. This can occur when a company counts the credit, but the corresponding country also counts the credit towards its own national goal. Therefore, it creates a false sense of accomplishment towards climate action which puts us further from the 1.5°c target than reported and further hinders efforts toward improving transparency and standardization.

The lack of accountability and transparency in the market inhibits the acceleration of necessary change that would be achieved with an optimized system. This furthermore causes issues, which can be highly damaging. For example, the purchasing of unverified credits poses multiple risks as projects have come under fire for unethical practices and lack of scientific proof. Another example is the purchasing of outdated credits, which allows companies to make unsubstantiated reduction claims and has no real impact on net-zero targets. This lack of transparency and standardization raises further questions on the concepts of additionality and permanence regarding NbS.

 


  • Additionality means that the project and the resulted reduction wouldn’t have occurred without the involvement of the VCM.
  • Permanence refers to an NbS guarantee against any future leak of carbon emissions into the atmosphere over a period of 30-100 years.

 

We are rapidly running out of time to prevent the 1.5°c rise in global warming that would affect billions of people worldwide and already does affect millions of people. Already there are indications we will break this limit within the next five years. The probability of the temperature rise being broken has increased to 50% from 20% in 2020 (World Metrological Organization, 2022).

The need for change is clear. The VCM has a key role to play, but the market needs to be improved in several key areas. These include creating shared principles for defining and verifying credits, transmitting clear signals of demand, installing safeguard mechanisms and price transparency, principles on carbon credit offsetting, and more (Taskforce on Scaling Voluntary Carbon Markets, July 2021).

However, there are early signs that the market is improving and scaling, with a greater focus being attributed to these key areas and on improving verification methodologies and processes. This desire to improve will only help in scaling the market and thus increase legitimacy, trust, and liquidity.

 

goodcarbon Shares

 

How Does goodcarbon Help the Voluntary Carbon Market?

Put simply by enabling upfront financing of NbS and elevating quality, transparency, and the overall process of buying carbon credits for every participating party.

goodcarbon’s mission is to shift the focus of global capital to restore and conserve  our precious ecosystems. The platform provides an investment and trading solution for carbon credits across a wide range of NbS such as forest, soil, and ocean.

First and foremost, the goodcarbon platform follows a strict selection process whereby any project listed must be verified and equally pass our own internal stringent checks. These identify a real value and price signal for projects that support the five following impact dimensions: climate change mitigation; biodiversity enhancement; benefits for local communities; climate change adaptation and pollution reduction and better resource management.

Alongside prioritizing the quality of listed projects, we equally conduct strong validation checks when it comes to the companies and investors using our platform. This ensures companies are committed to real climate action. For instance, if a company wishes to purchase goodcarbon Credits or Forward Credits, it must first have set emissions reductions targets. We recognize the importance of matching projects with the right companies.

goodcarbon isn’t just any ordinary carbon marketplace, it is a platform designed to provide benefit for every stakeholder. For instance, we offer goodcarbon Forwards that enable companies to access high-quality future carbon streams and support projects with early funding, while investors can utilize goodcarbon Shares to directly invest in the development of emerging NbS. This enables projects to begin scaling earlier while securing high-impact goodcarbon Credits for companies.

Finally, transparency and accountability are key at goodcarbon. The platform utilizes blockchain technology, allowing for greater market access for projects, companies, and investors with clear transparency. This means complete liquidity for participants combined with the security of financial assets protected by regulatory laws. This also elevates the quality of the VCM.

Together, this all equates to goodcarbon – a platform, team, and company that prioritizes lasting impact above all else.

The VCM, the compliance market, goodcarbon, competing platforms – ultimately, we all have the same goal: to save and protect our planet. And while the VCM is slowly improving, we want to accelerate change in this market, and most importantly, provide NbS with the real funding they need and restore nature – together.