EUROPEAN CLIMATE SUMMIT, LISBON, 29 March - The International Emissions Trading Association (IETA) has published a new paper, The Evolving Voluntary Carbon Market, shedding light on key trends in the market and on how the Voluntary Carbon Market (VCM) is evolving.
The paper, authored by a group of IETA members, identifies key market trends including the uncertainties that market players are experiencing due to current debate around the VCM and the ambitious role it can play. The paper discusses a range of topics significantly impacting the market by dividing them into the following four sections:
• Corporate net-zero guidance and inclusion of offsetting
• The relationship between the VCM and country actions under the Paris Agreement
• Consolidation or proliferation of crediting approaches
• Governance and increasing regulation
The VCM, which grew at its fastest-ever pace in 2022, must play a central role in the progression towards net zero. To do so, it must adapt to changing circumstances and evolving science: according to the paper, “the market finds itself at a crossroads. The VCM must evolve at a quicker pace than ever before to maintain public confidence in its ability to meaningfully contribute to the global goal of net zero by 2050.”
There are several reasons why the VCM must adapt. First, to provide a robust mechanism for corporates to reduce or remove emissions beyond their value chains. Secondly, to channel finance to where it is most needed, including low and lower-middle income countries. Thirdly, to pave the way to compliance markets in jurisdictions where they remain nascent.
Carbon credit markets are challenged by the lack of a single overarching governance system and a common set of standards and definitions but stakeholders such as the Integrity Council for the Voluntary Carbon Market (ICVCM), the Voluntary Carbon Market Integrity initiative (VCMI) and the International Carbon Reduction and Offset Accreditation (ICROA) are taking action to create commonly-accepted benchmarks that should boost confidence.
The VCM is rapidly evolving to incorporate the latest guidance on how corporates can use carbon offsets in their journey to net zero. The new IETA paper reiterates the importance of the so-called mitigation hierarchy: “Companies should avoid new sources of emissions, reduce internal emissions as much as possible, and only then compensate/offset residual emissions with the use of carbon credits.”
The paper also notes the growing role of removal credits, which represent net reductions in the atmospheric concentration of carbon dioxide but cautions against the assumption that, because such net reductions are not yet being generated at scale, companies should wait until the removals market has matured before taking action: “We strongly feel that carbon credits could be a central mechanism to enable stronger interim claims, or address gaps should corporates miss their interim targets. Missing an interim target is not acceptable when we have a relatively elastic and affordable mechanism at our disposal globally.”
The paper further underlines the positive role that carbon reductions and avoided emissions play in the transition towards net zero.
You can find The Evolving Voluntary Carbon Market paper on IETA’s website: https://www.ieta.org/Reports.