The Voluntary Carbon Market (VCM) has a problem. It lost trust over the past two years. Main media investigations showcased how projects that issue carbon credits, famously bought by corporates such as Shell, Netflix, and Disney, were flawed. Structural failures included overestimating the emissions saved by a project, not giving the money foreseen for local communities to those, human rights violations, … the list goes on. As a reaction, many companies such as Nestlé, easyJet, Gucci, and Delta Airlines left the market. No carbon-compensated products anymore. No carbon neutrality claims.
Good idea, bad implementation. Can we reshape the VCM?
Yet, money for emission reduction or removal projects outside of companies’ value chains is one important building brick to prevent the world from the worst consequences of the climate crisis: In its 2022 report, the Intergovernmental Panel on Climate Change (IPCC) underpins the importance of projects such as Nature-based Solutions (basically, avoiding deforestation or tree planting) and technological carbon dioxide removals (f.e. Direct Air Capture, a technology that withdraws CO2 from the atmosphere). Already today, finance for these types of projects is made accessible through the Voluntary Carbon Market.
However, the current VCM design lacks mechanisms that ensure carbon credits are issued based on high-quality projects. Projects that truly and measurably save the emissions promised, that do not harm local people and promote human rights. How could we scale up trustworthy projects and create a well-functioning market environment?
Article 6: A glimpse of hope
Article 6 of the Paris Agreement might be a turning point. It was set up in 2015 to provide a set of rules to regulate international emissions trading and enable a more transparent calculation of emission savings. Article 6 intends to avoid double counting – which means that an offset credit would be counted to reduce the company’s emission balance and at the same time to achieve national climate targets.
The implementation of Article 6 has been discussed since it was first vaguely set up. On the one hand, this concerns the international emission trading framework in Article 6.2. By that, the climate contract enables multilateral and bilateral agreements between states to trade credits for emission reduction or removal projects and ensures proper accounting. The implementation readiness here is advanced as some nations, including Switzerland, Ghana, and Peru already have agreements in place.
Corporates watch out on Article 6.4 credits
And then, there is Article 6.4. This is still a bit of a black box now — but highly relevant for corporates. 6.4 should basically give a future-ready design to the Voluntary Carbon Market. The discussions on its details could not be finalized throughout the last Climate Conferences. However, they shall now come to an end at COP28. Amongst the last open points are methodologies to verify and measure carbon credit issuing projects and the guidelines for carbon removals.
Olga Gassan-zade, chair of the Article 6.4 Supervisory Body, believes technical requirements will be ready for implementation in 2024, as she states towards S&P. The Supervisory Body will, after the final release of Article 6.4, assess registrations of project methodologies regarding their alignment. Until the first 6.4-aligned projects are on the VCM, high uncertainty remains on which projects will see increased demand and potentially higher prices.
Article 6.4: Just one puzzle piece in the big picture of integrity
Even if hopes are high for Article 6.4, the avoidance of double-counting and revision of crediting methodologies is just one pillar to rebuild trust in the VCM. To really gain confidence, the market architecture has to prove in the long run that it eliminates faulty projects and really steers money towards environmental and social benefits. There needs to be stronger risk management on the projects and a way more conservative estimation of emissions saved. If this can be achieved by Article 6.4 alone remains to be seen. Other crucial developments to watch out for in the context of trustworthiness at the VCM are the implementation of the Core Carbon Principles by the IC-VCM and the development of the Contribution Claim approach.
—
This post was previously published on medium.com.
***
From The Good Men Project on Medium
 |
 |
 |
 |
***
Join The Good Men Project as a Premium Member today.
All Premium Members get to view The Good Men Project with NO ADS.
A $50 annual membership gives you an all access pass. You can be a part of every call, group, class and community.
A $25 annual membership gives you access to one class, one Social Interest group and our online communities.
A $12 annual membership gives you access to our Friday calls with the publisher, our online community.
Register New Account
Need more info? A complete list of benefits is here.
—–
Photo credit: Yohan Marion on Unsplash
