Voluntary Carbon Markets – New tool to fight climate change

Climate Change is seen as of the major challenges of our time, and the ongoing fight again to mitigate its effects and adapt has seen a reassuring increase in companies looking to cut their greenhouse gas (GHG) emissions. For industries where GHG emission mitigation is unfeasible, companies are now seeking to offset their emissions through carbon credits.

COP26 saw the completion of Article 6 of the Paris Agreement, which has led to the scaling up of carbon markets in the plight against carbon emissions. Governments are expected to unlock the potential of voluntary carbon markets (VCMs) to offset emissions in the race to net-zero. Although there are some standards being established around the market, the current state of VCMs still requires some maturity, with a variety of carbon credit standards out there, creating challenges in the market. The Taskforce for Scaling Voluntary Markets (TSVCM) is establishing an extensive framework to tame VCMs through vigorous governance and gaining them credibility.

Increased demand to cut carbon emissions has resulted in the global demand for VCMs to triple in the last 3 years and is predicted to continue to increase by 10-fold by 2050. On its current roll-out trajectory it is estimated that the market will be worth $30 billion by 2030. Unlike the compliance carbon market, the freedom of VCMs give buyers the opportunity to purchase credits with non-carbon benefits. This enables not only carbon sequestration but also biodiversity preservation and payment to landowners attracting investors looking for a win-win-win scenario. If harnessed efficiently, VCMs have the potential to incentivise climate action, providing funding to carbon mitigation projects and ultimately contribute to significant climate action.

It is important to acknowledge that VCMs are not a replacement for the elimination of carbon emissions. VCMs do however have the potential to provide important funding to ambitious climate change projects that would otherwise lack resources to get off the ground. The scaling-up of VCMs under countries’ national determined contribution (NDCs) means the demand for carbon credits to reach carbon neutrality targets, has increased significantly. Volatile, low carbon prices have previously allowed polluters to hide behind cheap offset carbon credits. With the demand increasing for carbon credits, there is the potential to see a rise in carbon prices, resulting in a stabilised market, preventing credit consumers from disregarding their carbon emissions through offsets.

Carbon markets have previously reconceptualized land as a financial asset, which can sometimes prove a challenge to local actors on the ground. Viewing land solely as a carbon sink undermines local agricultural practices and displaces communities. It also incentivises a migration from agricultural land-use to projects such as afforestation, impacting food security. Double counting also poses a problem. Lack of governance compromises carbon credits as parties can claim twice, weakening the carbon trading framework. However, responsible and successful transformation of VCMs by regulatory bodies means that previous VCM misdemeanors can be avoided.

Such transformation is underway with carbon credits requirements meeting minimum standards. These standards ensure that projects issuing carbon credits sequester carbon within a specific timeframe, genuinely contributing to the reduction of carbon emissions. Requirements also highlight the importance that carbon sequestration projects are not pre-existing carbon sinks, meaning projects increase negative emission yields. Importantly, they also prevent previous social and environmental impacts through safeguarding, ensuring rights to local communities. It also prevents projects that have detrimental environmental impacts, such as the planting of un-native monocrops. A stringent, standardized VCM framework also mitigates the opportunity to double count carbon credits.

Implementing robust principles and formulating a VCM framework that is beneficial to all stakeholders has the potential to unlock a myriad of opportunities. The carbon market needs to be addressed and reviewed systematically, ensuring that its purpose is not lost. In doing so we can finance sustainable projects that benefit the environment and the community. Issuing carbon credits of a high standard and meeting defined principles criteria creates a market for high quality credits. Such credits can be priced higher, creating a lucrative carbon market, benefiting all stakeholders, including the environment and reducing the effects of climate change for the long-term.