Author: Nick Facciola

Nick Facciola is the director of carbon projects where he oversees the team responsible for monitoring, reporting, and verification of all the company's carbon and transportation projects.

Key Insights from NACW: Trending Topics in the Voluntary Carbon Market

In late March, I had the pleasure of joining my colleagues and peers at the 20th anniversary of North America Carbon World (NACW) in Anaheim, California. Yes, I said the same thing – “Twenty years – wow!”. NACW is one of the premier events for all things carbon, and one that I look forward to each year. The three-day conference is dedicated to the North American carbon market and climate policies, and time and time again proves to be a terrific place to learn, collaborate, and network.

Sofia Barker, Joshua Thompson, and Devin Hagan, members of 3Degrees’ Carbon Markets team, at NACW.

After having a chance to debrief with the 3Degrees team that attended, we realized that three topics seemed to be a common theme throughout NACW.

  1.       Guidance for the voluntary carbon market (VCM)
  2.       Value chain mitigation – aka insetting
  3.       And of course, carbon removals

The voluntary carbon market may see more stringent requirements in the coming years…maybe.

Popular discussions around NACW were “What will happen to the VCM in the near future?”, “Will we soon see more stringent requirements for developers?”, “Are we headed for regulation?”, and “What will the pending guidelines from some of the largest standards parties soon tell us?”

The Integrity Council for the Voluntary Carbon Market (IC-VCM) actually teased that they will be launching their latest Core Carbon Principles (CCP) at the conference, creating even more chatter.

The VCM has seen unprecedented growth over the past few years, so proposed efforts have been amplified to ensure the market is fully equipped to mitigate risk for all players – sellers and buyers alike.  

We were fortunate to snag a seat at a panel discussion with some of the key parties leading the way for these measures, including the IC-VCM, The International Emissions Trading Association (IETA), and the Carbon Credit Quality Initiative (CCQI), among others. While it seemed that most panel members were against full regulation, there was a direct call for transparency and integrity in the market. We are now also facing a perceived risk around carbon credits from buyers that will need to be addressed across the board. While initiatives like Net Zero are helping to shape a quasi-compliance-driven market, there will need to be more focus on quality from both a project and methodology standpoint.

We expect this to be a continued topic of discussion as guidelines are released.

To inset or not to inset?

Throughout the conference, the term “insetting” emerged as a buzzword during many keynotes and panel discussions I attended. Although insetting is ill-defined and lacks a standardized definition in the market, it generally refers to actions from companies that reduce emissions within their value chains, including, in some cases, through the purchase of carbon credits. Over the past few years, there has been a renewed focus on how insetting and value chain interventions can play a role in achieving corporate climate goals.

While some proponents proclaim insetting as key for organizations looking for long-standing reduction strategies, it’s still unclear how the Greenhouse Gas (GHG) Protocol will treat insetting and what types of data will be required to reflect an action in your greenhouse gas inventory.

Organizations such as the Value Change Initiative (VCI) are stepping in to help companies define and implement value chain emissions reduction or removal strategies, resulting in adjusted emissions factors for affected products and services. 

Verra is also preparing to launch a scope 3 program later this year to support the robust and consistent accounting of value chain interventions, prevent emissions reductions and removals from being double-counted, as well as establish flexible pathways for companies to engage in value chain interventions to incentivize greater climate action.

There was a unifying understanding that insetting will play a critical role in the development of the VCM and will likely be an increasingly key component of corporate scope 3 strategies.

Panel: “Biggest Challenges Facing Today’s Global Carbon Markets”

Carbon removals – high demand, low supply.

We were not surprised that carbon removals would be another trending topic at NACW, as it has been at most conferences in the past few years.

It has become abundantly clear that carbon removals will be the future of carbon offset projects — the problem though is simple: supply and demand.

Recently, SBTi indicated that only removals will be counted to reach Net Zero goals under their initiative, which understandably created a heightened sense of urgency to procure and develop these credits. On the project side of the market, last year only 3% of projects that sold credits into the VCM were pure removals, and only 13% of projects were both partial reduction and removals.

As expected, the limited supply keeps removal prices at a point significantly higher than reduction credits, making them unattainable for some organizations. This however should change over time as new technologies and methodologies are emerging daily to help bring new removal credits to the market, including biochar, sustainable concrete, and direct air capture.  

Many experts throughout the conference have even concluded that without the deployment at scale of Carbon Capture, Utilization, and Storage (CCUS) and Direct Air Capture (DAC) technologies the world will not be able to hit our 1.5°C target.

Parting thoughts from NACW

As expected, the entire 3Degrees team returned from the conference with a renewed enthusiasm for, not only the carbon market, but the meaningful work we get to do daily.  While there are clear cries for guidance from buyers and developers alike, the VCM is stronger than ever, and I cannot wait to see what the future holds for our industry. See you next year, NACW!

P.S. If you were keeping up at home, that’s a total of fifteen acronyms. 

A vision of transparency, integrity, and confidence in the global carbon market

Earlier this month, I was thrilled to reunite (in person!) with friends and colleagues after a long two years at the North American Carbon World (NACW) conference in Anaheim, California. This three-day event brought together leading minds in the world of carbon to discuss, analyze, and critically map the path forward for the global carbon market. 

I took part in both high-level musings and detailed, esoteric discussions spanning the many new policies, market trends, and global current events that intersect with carbon markets. There were some common threads woven through the many plenaries, breakout sessions, and hallway conversations. In this blog, I will review a handful of those themes, and share some of my insights as I closed out my experience at NACW 2022.

The challenges and unknowns

War in Ukraine
Beyond the atrocities that are being waged against the people of Ukraine, the unfathomable suffering, and grave human toll there has also been economic shockwaves that have rippled through every global financial market. The voluntary carbon market (VCM) is no exception. Carbon prices have been extremely volatile in the wake of Russia’s aggression. In the early weeks of the war, prices fell nearly 42% within 7 days and before sharply rebounding.

Among other things, this war has highlighted the danger of fossil fuel energy dependence and underscored the need to accelerate the clean energy transition. In the near term, the demand for alternative sources of fossil fuels such as coal and liquified natural gas (LNG) is expected to rise resulting in a global increase in annual emissions. These increased emissions will inevitably result in more demand for offsets, specifically carbon removals as well as a more realistic price for carbon globally.

Article 6 and Corresponding Adjustments
In the months following COP26, the industry has been abuzz with commentary, predictions, and questions on how exactly to interpret the Paris Agreement’s Article 6 framework. Article 6 allows a country to use carbon credits issued for carbon reductions or removals in another country to count towards its own emission reduction target or nationally determined contribution (NDC). These credits will require “Corresponding Adjustments” (CAs) in order to ensure there is no double-counting between countries. The idea is that the “host” country must adjust its own emissions inventory to reflect the transfer of the emissions reduction to another country.

Photo of North American Carbon World Speakers.

Alexia Kelly Director of Net Zero and Nature at Netflix and Brad Shallert Director of Carbon Market Governance and Aviation at WWF lead a discussion on Driving High Quality Standards in Carbon Markets.

Many questions remain unanswered both from a global regulatory perspective as well as from a voluntary standpoint. Though Article 6 language does not require that CAs be issued for the VCM, this uncertainty leaves some buyers questioning the longevity and legitimacy of current voluntary credits and whether a “Paris-aligned” carbon credit will ultimately reign supreme to support global action toward 1.5 °C under Paris. 

The thematic undercurrent of these conversations is that while Article 6 uncertainty continues to loom large in the VCM, we cannot decelerate the financial support of global emissions reduction and removal projects. Every tool available must be leveraged. We must continue to scale capital in the VCM while continuing to construct the Article 6 marketplace.

Investment in Avoided vs. Removal Projects
This question of whether to pursue avoided emissions or carbon removal project investments came up repeatedly in the sessions I attended. It seems that while a rapidly growing number of organizations have formally committed to Net Zero emission targets, there remains little in the way of clear and consistent guidance on the type of credits that will be eligible under the various programs.

It seems some of the confusion lies in a concept that under SBTi’s Net Zero Standard, carbon credits are not permitted in any form to meet either near- or long-term targets. While at the same time, in SBTi’s Beyond Value Chain Mitigation FAQs, it states: “purchasing high-quality carbon credits in addition to reducing emissions along a science-based trajectory can play a critical role in accelerating the transition to net-zero emissions at the global level.”

Despite the rampant confusion over guidance and growing excitement over nascent carbon removal technologies, a consistent response to the repeated question was a “Yes, and”. We need both. We need every tool at our disposal to address the climate crisis. We must preserve existing carbon stocks and critical ecosystems as well as avoid short-lived climate pollutants such as methane from unregulated sectors, while we work to fund emerging carbon removal technologies that will be imperative in a net zero economy.

The solutions – TSSQ (because we all need more acroynms in our lives)

Transparency & Simplification
Many buyers cite lack of transparency as a key contributor to the level of difficulty encountered navigating the carbon markets, specifically the voluntary market. By-and-large, there are very few bad actors that are in the business of trading dodgy credits. And, as someone who develops carbon credits for a living, I would be remiss not to point out that the verification process is extremely rigorous! We conclude that buyers are simply confused. The level of education, time, access, and scrutiny required to screen projects across the market would be a daunting task for most buyers. Straight-forward and unfettered access to project-level information will allow buyers to “get under the hood” on their project investments and help instill a higher level of confidence in the marketplace.

Another common theme at the conference was a need to build more standardization across the voluntary carbon market – from project screening, reporting and claims on the buy side, to validation criteria on the sell side. Some in attendance theorized that at some point in the not-too-distant future, the compliance markets and voluntary markets will converge into one universal compulsory market, bringing to bear a much clearer and unified framework.  Absent that, market experts see technology playing a large role in bringing about this standardization. By converging disparate platforms, we can build a common language spurring further confidence and capital in the VCM.

Without confidence in the market, there is no market. Confidence is earned by ensuring that the VCM consists of high-quality, high-integrity attributes. By staying laser-focused on upholding carbon credit quality, institutional investors will be further incentivized to participate in the VCM. More unlocked capital means more investment in the innovative technologies that are needed to accelerate the pace to global net zero.Programs like the VCM Integrity Initiative and The Carbon Credit Quality Initiative are building systematized ways for buyers to better understand the projects they are investing in and providing clear guidelines for making solid, credible claims. These measures provide the assurance necessary to build the internal business case and mobilize financing at scale.

Parting thoughts from North American Carbon World

I left NACW with renewed excitement and a solid belief that the state of the market is strong. With unprecedented new carbon investments, strong and growing market prices, and the emergence of game-changing technologies, it feels as though we’re at an inflection point.

Like any market, there are many complex factors that can sharply influence stability or volatility within the VCM. I find comfort in distilling these factors into simple, digestible terms. The simplest and most sound vision for building a thriving VCM was outlined by Alexia Kelly, Director of Net Zero & Nature at Netflix in her session Driving High Quality Standards in Carbon Markets. She described achieving scale in the VCM through three key pillars:

To 1) Ensure high quality credits are 2) traded in markets with high integrity and transparency and are 3) moved in ways that are universally accepted.

The market is primed, we have the tools, and I am excited to see how this market grows and matures on our collective path to meeting the challenge of 1.5 °C.