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In touch with global carbon markets

IETA Network Connection - October

Defending the market's integrity

I’ll confess a bias – I love John Oliver, and satire is probably my favourite comedy genre. Oliver is relentless in skewering leaders in virtually every aspect of public life, and often they deserve to be skewered! Maybe that’s why the 21 August item on offsets stung so sharply, because we are usually on the same page.

Now that the dust is settling, I’m reflecting on how the Oliver show took me back 25 years or so. That’s when I first heard about emissions trading. As a lawyer, I had to ask, would it really work? Or would companies abuse the flexibilities? Would emissions really go down? But 25 years later, we have the proof. As one friend wrote me recently, “the fact that emissions in Europe are now 1 billion tonnes a year lower than they were at the launch in 2005 demonstrates the power of the mechanism to stimulate real emission reductions.”

When the TV audience gets over the cheap thrill of the Oliver attack, they will turn to another fun topic, but we will still face the urgency of the climate crisis. We have important work to do. Both governments and a growing share of business worldwide accept that we must do our utmost to meet the Paris Agreement goal of limiting temperature increases to 1.5 degrees Celsius. And this must include both mandatory and voluntary action.

This is at the core of what IETA stands for. Through our work with companies across different sectors as well as governments, NGOs, carbon project developers, intermediaries and exchanges, we foster market-based solutions to raise climate ambition and accelerate decarbonisation.

Carbon markets are a critical tool, but by no means the only one, in the global emission reduction efforts. But few other tools provide the same environmental certainty as the cap-and-trade model.

A few more details... 

Oliver presented a misleading view of carbon markets and carbon offsetting. The IETA community has already expressed its deep concerns over the way the topic was handled; there have been a number of strong and thoughtful responses to it, including from ACR and VERRA. I know I’m preaching to the choir, but a few points must be made: 

  1. We are aware that the role of carbon markets in the global net zero transition is often misunderstood. It is our aim to shed more light on the subject and to present key facts that point to the undeniable benefits that carbon markets bring to our fight against climate change.

    Despite the light-hearted nature of the piece, it touched on very important issues that are often misconstrued due to their complexity, and a lack of adequate and high-quality information and learning resources in the public realm. And we have to do better as a community to convey accurate information. There is much more to carbon markets than meets the eye. We would like to offer a few facts that would make a much better story for Mr. Oliver’s show.

  2. We support binding targets with market flexibilities aligned to Paris goals. We stand on high ground in our aspirations for net zero, but we know that some jurisdictions will struggle to implement binding national laws on climate change, including the United States. In such places, the VCM offers the best alternative available for advancing private sector investment in international climate mitigation.

  3. But the VCM goes beyond binding regulations and mandates, and offers more to the global effort to combat climate change. By voluntarily reducing their own internal emissions and offsetting unavoidable GHGs from their processes, companies can invest in clean technology deployment and sustainable development around the world.

  4. The credits are valuable, because they pass a set of important integrity checks in the approval process. They follow standards that are rooted in sound science and carefully defined by independent professional organisations in public consultation with academics, NGOs and industry experts. Credits are then monitored and independently verified to ensure they represent real, permanent and measurable GHG reductions. The verifiers must also pass tests of independence and competence before they can perform their duties. The system has rigour, which instils business and consumer confidence.

  5. The amount of finance available through the VCM is significant. No serious policymaker would scoff at it. The show mocked the quadrupling of the VCM in 2021 to an estimated $2 billion in value. In comparison, for the 2019-20 period, the Climate Policy Initiative estimates that the amount of “new” climate finance investments in the Multilateral Climate Funds (MCFs) increased annual financing to $3.5 billion in 2019/2020, up just 18% from 2017/2018. Few serious analysts would argue that the VCM’s private international investments should be curtailed while public investment in international mitigation is struggling to meet the environmental need.

  6. The VCM is part of a larger drive towards compliance markets. The World Bank estimated that, in 2021, compliance markets mobilised $84 billion in capital for investments in emissions reductions globally. The largest carbon markets in the world are compliance markets, where regulatory caps decline to net zero. Where those markets do not exist, the VCM attempts to mirror the requirements expected of industry in the compliance systems – effectively extending controls through voluntarism. This is NOT a bad thing – this is a very important tool for expanding corporate action.

  7. But business support is essential in the fight against climate change. Oliver might think that business support is an evil sign, but it isn’t. Carbon markets now operate with strong business support, because they are clear on the desired outcomes while allowing flexibility for companies. The flexibility does not reduce the environmental performance, but it does lower cost and preserve competitiveness. This is why businesses, shareholders and customers have a common interest in making markets work for the climate.

  8. Carbon markets are always improving. The tools are updated regularly to reflect changes in technology, local practices and market conditions. For example, as renewable energy technology costs improve, the standards re-evaluate whether they should meet additionality thresholds in some markets. This mirrors how government regulations and subsidies approach the topic of renewable energy support. The process of learning and improvement is not a defect. It is a part of most climate policy approaches.

  9. Our industry is also working to build an even more robust system. The Integrity Council for the VCM, backed by hundreds of the largest companies in the world, has the single aim of making the voluntary carbon market a trusted, reliable and ambitious component of the global effort to combat climate change.

Dirk Forrister
President & CEO

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IETA Member's Corner

Climate Action Reserve

How is Climate Action Reserve involved in the carbon market?

As an offset project registry, the Climate Action Reserve sets standards for transparency, quality and rigor that create a foundation for the carbon market. These standards are apparent in all of the Reserve’s work – from the development of its offset protocols to the issuance of offset credits. Without assurances for those high standards, the market would fail on multiple levels. Real action on climate change would not happen, progress towards global climate goals would be lacking and prices for credits would plummet.

In supporting the carbon market, the Reserve registers offset projects that have been verified to adhere to its offset protocols and program manual, and it issues offset credits, known as Climate Reserve Tonnes (CRTs), to those projects. Project documentation and credit details, including their unique serial numbers, are all publicly available on the Reserve’s registry.

Because of the way the Reserve’s offset protocols are developed, its staff members are able to provide detailed, knowledgeable support while projects are being developed. They also are able to efficiently register projects and issue credits without sacrificing any of the organization’s standards.

Another key role the Reserve plays in the carbon market is advocating for these high standards. For over 20 years, the organization has been a leader in pushing for high standards for permanence, additionality and transparency in the carbon market, and it will continue to fill this role, especially in this critical time of global expansion for the carbon market.

Why did you join IETA?

IETA has always been a critical force in the development of global carbon markets and bringing together stakeholders to collaborate. The carbon market is an integral tool for the global community to reach climate change goals, and the Reserve recognizes that working together with other market stakeholders through IETA is critical for ensuring we utilize this tool to its highest potential.

IETA Publications

A Roadmap for Linkage: Aligning California and Washington's Carbon Prices

Washington state and California share an interest in eventually linking their carbon markets, according to this paper by IETA and the Environmental Defense Fund (EDF). The paper argues that linking is best achieved after alignment of key programme designs, such as noncompliance penalties, price ceiling mechanisms, and cap setting processes. 

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