Carbon market credibility: As international standards take shape, some companies forge their own paths

The market for voluntary carbon credits has grown exponentially. It quadrupled in value to $2bn within a year (2020-21) and could well expand even more rapidly in the years and decades ahead.

Growth has been driven by businesses seeking to offset their emissions footprint to meet carbon targets, appeasing stakeholders including investors and customers. Likewise, credit developers have sought to monetise projects that reduce, prevent or remove carbon.

Interest in the market boomed far more rapidly than standards could be drawn up to regulate it. It has frequently been described as the Wild West.

Concerted efforts have been made internationally to better define integrity and quality for carbon credits – for buyers, sellers and traders alike. Defining bodies are seeking to align to end confusion. And these more universal definitions are being tested in the real world for the first time.

Late last year, the Voluntary Carbon Markets Integrity Initiative (VCMI) launched a coalition of businesses to test its materials advising on credit usage strategy development and making claims on climate impact. Participants include Natura, Bain & Company and Boston Consulting Group.

VCMI guidance was updated shortly afterwards. This update clarified that businesses should use offsetting in addition to, not instead of, decarbonising their operations and value chains, but it also opened the door for more flexibility in offsetting Scope 3 (indirect) emissions.

More recently, on the seller and trader side, the Integrity Council for the Voluntary Carbon Market (ICVCM) approved its first credits in line with its Core Carbon Principles last month.

It also confirmed that the Principles could, in theory, be applied to 27 categories of credits which collectively represent more than half of the global market. The Principles could effectively block the supposed generation of credits from switching from coal to new natural gas power plants, improving industrial energy efficiency and industrial heat recovery.

A significant credit category covered by the VCMI’s Principles is REDD (Reducing Emissions from Deforestation and Forest Degradation in Developing Countries).

The architects of the REDD methodology, Verra, updated key components of its approach late last year after a media investigation led by The Guardian concluded that 90% of its rainforest credits were ‘junk’. Verra disputed the claim but forged ahead with a change of CEO and the methodology update nonetheless.

Partly as a result of this and other criticism, overall carbon credit trade volumes were 51% lower in 2023 than the high witnessed two years prior.

A fork in the road

As the VCMI and ICVCM begin to take their standards from theory to practice, most businesses are waiting before wading in.

A recent edie survey of 180+ businesses found that 60% believe the market is “currently too risky to invest in”. Similar We Mean Business Coalition research put the proportion closer to 80%.

Amazon is bucking this trend, Reuters reported this week. The e-commerce giant stated to reporters that it has completed work on Abacus, a framework for verifying the quality of credits generated by reforestation and agroforestry projects. Abacus was announced in 2022 and is being co-developed by Verra, with a public consultation having taken place last autumn. It will act as an alternative to the ICVCM’s label for these kinds of projects.

It bears noting that Seattle-based Amazon, in taking this approach, is potentially diverging from the US Federal Government. The Biden-Harris Administration launched principles for ‘responsible participation’ in voluntary carbon markets earlier this year, drawing heavily on the work of the VCMI and ICVCM.

Amazon’s global head of carbon neutralization Jamey Mulligan told Reuters that it wanted to pioneer a framework more ambitious than the ICVCM’s, but supported its general mission.

Amazon’s founder Jeff Bezos notably backed the ICVCM with at least $11m from the Bezos Earth Fund after his resignation as Amazon CEO in 2021.

While the drive for more ambition is welcome, there are fears about whether Amazon will set a precedent. Multiple competing labels could fragment the standards landscape just as it seeks to streamline internationally.

Greenwashing risks in a fast-moving market

It bears noting that Amazon is one of a select few businesses actively diverging from the ICVCM and VCMI now their resources are published.

Many businesses had taken a different approach in the past, mapping their own individual with little to no centralised guidance in the hopes of getting ahead of the curve. Some of these firms are now fine-tuning their approach in line with new, internationally-backed recommendations. Or, in failing to do so, are being called out in the media.

A BBC Panorama documentary this year criticised organisations including Netflix and the BBC itself for purchasing offsets with credibility issues from nature projects in Kenya.

This week, British energy supplier Ecotricity is in the spotlight. It generates and supplies renewable electricity, plus gas from a mix of sources, to homes and businesses. It is pioneering biomethane made using grass cuttings as it transitions away from fossil natural gas.

OpenDemocracy has slammed the firm for stating that its fossil gas, which still accounts for 99% of its gas mix, is “carbon neutralized” due to the purchase of carbon credits. It claims that its gas produced no net emissions in financial years 2021, 2022 and 2023.

Questioned about this claim, an Ecotricity representative told OpenDemocracy that the company is updating its approach to offsetting after previous support for several projects, including hydropower projects and clean cookstoves, did not deliver the “promised” benefits.

The representative said: “We used carbon credits to entirely offset our gas supply for the financial year 2024, which is now closed, and our offsetting programme for the financial year 2025 is currently under review which is why we do not currently hold any credits.”

It was added that it would be “false and misleading” to claim that Ecotricity would not offset gas emissions in the future, but the business does see offsetting as “a bridge” as biomethane production scales and as the business explores carbon capture and removal within its own value chain.

“Carbon offsetting isn’t ideal – we see it as an interim solution,” states the Ecotricity webpage on biomethane.

Nonetheless, customers are told on the corporate website that Ecotricity is a carbon-neutral company which wants to power Britain with “green gas”.

Businesses claiming to be carbon neutral due to the purchase of offsetting could soon be banned from doing so in the EU, as the bloc passes a new directive on green claims.

The directive will also prevent businesses from making vague claims like ‘green’ or ‘eco’ without clear data, and from creating their own eco-labels in an attempt to gain customer trust. Claims must be third-party verified and there is a temporary pause on new eco-label launches.

The directive is set to apply from early 2026. While it won’t apply to goods and services sold in the UK, British firms selling into one or more EU markets will need to plan ahead.

Ecotricity owner Dale Vince has stated that he supports the EU’s drive to weed out greenwashing.

Related feature: Why 2024 is a make-or-break year for voluntary carbon markets

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