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Home » Editorial » Chaos In Voluntary Carbon Markets Will Either Doom Or Change Them

Chaos In Voluntary Carbon Markets Will Either Doom Or Change Them

Ken Silverstein Senior Contributor

An international body representing the voluntary carbon market is suggesting to its members that they should oppose sovereign carbon credits created under the Paris climate agreement. Its claim: Corporations are faster than countries in the race to meet climate targets.

The rough draft — The Evolving Voluntary Carbon Market and leaked to this reporter — says the voluntary carbon market is the most viable means to meet net-zero goals. But the International Emissions Trading Association misses the point at best and is deceptive at worst. Sovereign carbon credits created under the Paris agreement are an existential threat to the voluntary market, which does not want to undergo the same level of oversight.

“The voluntary carbon market could be the primary mechanism to address any gap in corporates missing their science-based interim targets, which will occur as the market experiences unplanned shocks, as we have seen by the Ukraine war and the consequential increase in the use of coal-based power generation,” the leaked document says. “Voluntary emissions reductions should be used to close the gap. Missing an interim target should not ever be acceptable when we have a flexible and affordable mechanism at our disposal globally.”

COP27 in Egypt last November put rainforest nations on a de facto fast track to attracting private finance, making it easier for companies to support national efforts to slow deforestation through “sovereign” carbon credits. Because federal governments issue those credits under the Paris Agreement, it will raise more monies for forest preservation and infrastructure improvements.

Currently, the voluntary carbon market — private deals negotiated between landowners and intermediaries — has greater market share. Still, those credits made up just 200 million tons of emissions reductions in 2021, a fraction of the 500 billion tons needed by 2050.

But they are coming under intense scrutiny: The Guardian’s 9-month investigation into those financial vehicles says about 94% of the ones issued by Verra are “worthless.” The news outlet also said the enterprise exaggerates its impact by 400%. Verra responded that it is phasing out its current program and replacing it with a new one by 2025. ChevronCVX +0.9%, Disney, and UnileverUL +0.2% buy these credits.

Does the Paris Agreement Mean the End of Voluntary Markets?

“The work on REDD is consistent with Verra’s efforts to constantly improve its standards across a range of climate and sustainable development activities, by consulting with experts with a wide range of views. Verra then develops consensus solutions,” Verra said in a statement late Friday. “There are always critics, and their voices are heard within the consultations, but the process is robust and transparent. It is designed to deliver ever-higher standards and integrity.”

REDD stands for “reducing emissions from deforestation and forest degradation.” Unfortunately, ‘REDD+’ was never patented. Costa Rica and Papua New Guinea introduced the reference in 2004 at the climate talks, linking nature-based solutions and national rainforests to emissions reductions. But the voluntary carbon market, which lie outside the Paris agreement, also took up the acronym after 2004.

National governments sell sovereign credits and distribute the proceeds to local forests and infrastructure projects, all monitored by the UN Framework Convention on Climate Change (UNFCCC).

In contrast, voluntary carbon credits lack central oversight that result in rainforest nations getting pennies on the dollar; intermediaries take a hefty cut. For example, landowners in Bolivia prevented the deforestation of hillsides, but they cut down trees on the plains. The carbon impact trumped the carbon credit, allowing the communities to sell the wood and get paid to preserve some trees.

The voluntary carbon market says the methodologies used to issue carbon credits and measure their emissions reductions should be publicly available. At the same time, the International Emissions Trading Association wants to refrain from being regulated, saying it would disrupt its growth. But let’s fact-check: the compliance market, which national governments and U.S. states oversee, is worth $850 billion. The voluntary carbon market is worth $2 billion.

The trade group also says corporations can respond to markets faster than countries. But the Carbon Disclosure Project says that less than 1% of companies have a “credible climate transition plan.” Accenture’s findings are similar: 34% of the world’s largest companies are now committed to carbon neutrality, but 93% of them won’t hit their 2030 targets unless they speed their emissions reductions.

Who Should Lead the Charge?

“The need for companies to develop a credible climate transition plan is not an additional element but an essential part of any future planning” — necessary to avert the worst impacts of climate change and send the correct signals to capital markets, says Amir Sokolowski, global director for climate at CDP.

In contrast, Papua New Guinea has reduced its emissions from the forest by 53% since joining the Paris agreement in 2015. It is rejecting carbon credits outside of that framework, saying there is no oversight in “the voluntary world.

The International Emissions Trading Association has no chance of reversing the climate agreement and preventing corporations from buying sovereign credits. But that has not stopped it from making false claims.

It references the Warsaw Framework from December 2013, which does not mention sovereign carbon credits or private finance: Sovereign credits lack “independent monitoring” and “validated baselines” to ensure “the real nature of carbon credits,” the leaked document says. Interestingly CORSIA — Carbon Offsetting and Reduction Scheme for International Aviation — used the same argument to reject Paris-approved REDD+ sovereign credits.

But the 2015 Paris agreement clarified the Warsaw Framework, and enshrined sovereign credits in the 2022 Sharm-el Sheikh implementation plan. Moreover, there are 54 things that each country must do before issuing a carbon credit under the sovereign REDD+ mechanism. And those 54 decisions are reviewed twice. It takes a country about four years to complete.

Countries submit forest reference levels or deforestation baselines based on their historical emissions. The Paris Agreement does not allow credits centered on future promises — only on past reductions and achievements.

For example, Lee White, Gabon’s Minister of Water, Forests, the Sea, and Environment says the UNFCCC REDD+ auditing process was exhaustive, requiring multiple reviews and changes. He contrasted it with that of Norway — one of the only countries to invest directly in the rainforest nations. Norway paid Gabon $70 million to preserve its forests.

“I would say Norway’s was five times less intense, five times less thorough than the UNFCCC audit,” White told an audience in Sharm-el Sheikh. Gabon absorbed 1 billion tons of CO2 between 2010 and 2018, allowing it to sell 90 million tons of Paris-approved sovereign credits.

When the voluntary carbon market sprung up in the mid-2000s, it aimed to reduce emissions and provide monies to emerging nations. Now it is worried that the sovereign credit market will supplant it. But the climate emergency subsists, compelling countries, corporations, and philanthropists to participate in the carbon credit market — the most promising of which is spelled out by the Paris agreement.

Verra Responds:

It is absolutely incorrect to say that 90% of Verra-certified REDD+ credits are worthless. The article bases this false claim on extrapolations of three reports by two different groups, who assessed a small number of projects using their own methodologies.

The main criticisms of Verra’s REDD+ methodologies cited in the article have already been addressed by a review that has been underway since 2021. The multiple methodologies currently used for avoiding unplanned deforestation projects are being consolidated, and a jurisdictional allocation approach is being adopted. Meanwhile, project baselines are now re-assessed every six years rather than ten.

Verra has certified over 1,500 carbon projects, which have been assessed tens of thousands of times by third party auditors. They have delivered billions of dollars for rural areas in the global south, in support of action on climate change and biodiversity loss. This level of finance was delivered due to strong standards and methodologies, which we will continue to strengthen, in cooperation with governments, scientists, and local communities all over the world.

Verra is not scrapping its REDD methodologies.

An update to REDD has been subject to consultation for many years. A key outcome of the latest consultation, which took place a year ago, was to bring forward release of the update to July-September 2023. Existing REDD projects will use this update when data for their respective jurisdictions are available and approved.

All of these decisions were made before the Guardian’s reporting, which Verra addressed separately in a statement published on 18 January, and subsequent technical review which found that the Guardian article and two of the three studies on which the article was based are patently unreliable.

We are proud of our work on REDD, which has been vital in addressing deforestation, restoring biodiversity, and delivering on governments’ climate commitments under the Paris agreement.”