The voluntary carbon market (VCM) is grappling with opposing forces: the need to ensure quality as the market grows larger and more complex. At a high level, the influx of resources into the market over the past few years is a positive signal for global efforts to mitigate climate change. But quality concerns have dogged the market. Until there is a widely accepted definition of credit quality, buyers risk potentially using credits that might not represent one ton of avoided or removed emissions in order to “offset” or “neutralize” one ton of their own emissions. Unsurprisingly, the media, market participants, nonprofit organizations, and other thought leaders in the voluntary carbon market have taken notice as this problem grows in size.
In response, efforts to create a clear, common framework for identifying quality credits and claims are accelerating and starting to come to fruition. Most recently, on March 29, the Integrity Council for the Voluntary Carbon Market (ICVCM), an industry working group seeking to establish a global threshold for supply-side integrity in the voluntary carbon market, released part one of its long-awaited guidance. The ICVCM’s March 2023 guidance revealed new information in the following key areas:
- The Core Carbon Principles
- Program-Level Assessment Framework Requirements & Procedure
- Timeline for What’s Next
The Core Carbon Principles
The ICVCM’s guidance is framed around the establishment of the “Core Carbon Principles” (CCPs). The CCPs are 10 key principles that any carbon credit must meet to pass the organization’s high-integrity threshold. The principles are categorized into three buckets:
Program-Level Assessment Framework Requirements & Procedure
In addition to defining the CCPs, the new guidance includes a “program-level Assessment Framework” for how the CCPs will be applied to carbon programs managed by widely-recognized registries, the organizations that create the rules and requirements for issuing carbon credits.
The detailed Assessment Framework for “programs” flows logically from the 10 newly established CCPs. For example:
- Under the Governance CCPs, the Integrity Council (IC) will consider whether a registry requires publication of enough information for stakeholders to review any given project in detail.
- Under the Emission Impact CCPs, the IC will look at how registries ensure robust quantification of emission reductions, including their practices for addressing uncertainty, applying conservativeness, and updating baselines when renewing crediting periods.
- Finally, under the Sustainable Development CCPs, the IC will consider registry practices for requiring stakeholder consultation and mitigating risks to communities that were identified as part of the project development process.
The new guidance also confirms that registries will need to proactively apply for ICVCM approval. This means that if the largest carbon credit programs – namely Verra, Gold Standard, Climate Action Reserve, and American Carbon Registry – do not apply, the CCPs are unlikely to be adopted as a quality threshold in the market. Gold Standard has already indicated that it intends to apply for approval.
The guidance also included some more unexpected details within each of the three CCP categories. The Governance CCPs specify that any registry already approved by the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) will immediately meet most ICVCM Governance criteria. This is a sign that the ICVCM is beginning to lean on other market standards and quality assessments. The Governance CCPs also state that registries must require identification of the entity on whose behalf carbon credits were retired, as well as the purpose of the retirements. As of now, these are details that registries do not universally require, particularly from entities purchasing credits with the intent to resell them, such as brokers and secondary marketplaces.
The Emissions Impact CCPs reveal that carbon credits issued in advance of actual emission reductions, based on expected emissions impact (credits issued “ex-ante”) will not be CCP-eligible. However, registries issuing both ex-ante credits and credits based on already-achieved emission reductions (called “ex-post” credits) may still apply for approval of their ex-post credits. This is significant in that registries like Climate Action Reserve Climate Forward Program and Plan Vivo that may apply for ICVCM approval do issue both ex-ante and ex-post credits.
Finally, the Sustainable Development CCPs go further than the practices adopted by many registries today to avoid the unintended social and environmental consequences of carbon projects. Specifically, the Assessment Framework requires registries to include local stakeholders as part of project design and implementation in a manner that is “inclusive, culturally appropriate, and respectful of local knowledge,” and take these consultations into account and respond to local stakeholders’ views.
Going beyond the CCPs, the new guidance outlines requirements for registries’ optional application of additional “attributes” or tags to CCP-approved credits displaying specific characteristics. The three possible attribute tags include: (1) Host country authorization to internationally transfer (i.e., “export”) project credits under Article 6 of the Paris Agreement; (2) a share of project proceeds flowing to adaptation to climate change (specifically, contributing to the UNFCCC Adaptation Fund); and/or (3) quantified positive Sustainable Development Goal impacts.
Timeline for what’s next
Building from this release, the ICVCM is planning to publish quality requirements for unique combinations of project types, programs, and protocols (called project “categories”) in Q2 of this year. Together, the March 2023 and Q2 2023 guidance documents will make up the full framework through which the ICVCM will assess the quality of registries and carbon project categories.
Upon release of the project category Assessment Framework criteria, the ICVCM will create expert working groups to evaluate whether specific project categories meet the requirements of the CCPs. This will be a large undertaking given the sheer number and complexity of unique project methodologies in the market. It is not yet clear how the ICVCM will form these groups and who will be included.
Following creation of these working groups, the ICVCM plans to open the application process for projects and announce the first CCP-approved credits by Q3 2023.
ICVCM guidance reception and implications for carbon credit buyers
Ensuring transparency, treating common project-level uncertainties conservatively, avoiding double-counting, and engaging community stakeholders are already considered table stakes for major carbon credit registries and corporate buyers seeking high-quality carbon credits. In other words, the ICVCM’s new requirements of registries will likely function mainly to ensure a universal “floor” for high-integrity practices and add another layer of third-party oversight by the ICVCM. As a result, this partial release of guidance has been interpreted by some as falling short of expectations to shore up quality in the market.
At 3Degrees, we remain encouraged by the potential of the ICVCM to enhance quality across the supply side of the voluntary carbon market. Although the ICVCM’s program-level guidance may not represent an immediate and substantial leap in ambition for many registries, we see centralized oversight of voluntary carbon credit programs as key to ensuring all carbon credits meet critical baseline quality criteria. Starting with a realistic and achievable level of ambition will allow the ICVCM to ratchet up its requirements over time, gradually raising the “floor” on high-integrity practices in the market. We hope that the forthcoming release of project category-level guidance represents the next level of ambition that stakeholders are looking for within the voluntary carbon market to ensure the market can reach its full potential as a powerful tool to help reach our global climate goals.
If you have questions about what the ICVCM’s new guidance means for your carbon strategy, please reach out.