Reporting and opinion by Mathew Carr
July 27-28, 2023: A standard setter in the voluntary carbon market has flagged its rules will get tighter and tighter over time, which should provide a light at the end of the tunnel for the long-struggling market.
The locking in of this “better-over-time” notion for “accepted market standards” should help boost confidence.
The notion of continuous tightening is baked into the Paris climate deal struck in 2015. That agreement between almost 200 nations has not so far prevented increases in global GHG emissions to repeated record levels for many of the past seven years.
The carbon markets have not expressed confidence that standards or regulators, governments will be able to create scarcity in the market. Today’s market impact of the new standards by the Integrity Council for the Voluntary Carbon Market was close to zero.
That sentiment could change as transparency of existing dealmaking improves. Government regulators could also flag they are supportive of the ICVCM system.
An example of a rule that might improve over time is that emissions cuts generating credits must be permanent.
The current principles (updated, confirmed Thursday by the council) indicate a project that cuts or removes emissions for 40 years is permanent enough.
See this section:
The carbon-crediting program shall in relation to Categories listed in criterion 9.1 b) 1) above:
1) require a monitoring and compensation period for such mitigation activities of at least forty years from the start of the first crediting period or to at least the end of the crediting period, whichever is the later;
Still, the council flagged that might shift to 100 years:
The ICVCM recognises the evolving market practice around ensuring permanence and measuring and addressing reversals. A work program will address the following aspects of permanence and addressing reversals:
Monitoring and compensation periods and/or reserve requirements, including consideration
of methods to provide for longer monitoring and compensation periods (e.g., one hundred
years), to consider whether monitoring and compensation periods should count from the
start of the first crediting period or from the vintage of the mitigation outcome, and to
consider options for transferring the monitoring and compensation oversight to the carbon crediting program or the jurisdiction, including taking into account emerging and existing
best practice among carbon-crediting programs;
Ultimately, this permanence rule will need to extend to something like 1,000 years to protect the climate, I reckon.
Reaction by Carbon Market Watch, the environmental lobby group:
“The ICVCM requirements on permanence are not only weak and scientifically unsound, they are also below best practice in the market, and include specific exemptions for J-REDD [forest-based carbon credits] that are even weaker than CORSIA, the UN’s inadequate carbon market for aviation,” said Inigo Wyburd, policy expert on global carbon markets at Carbon Market Watch, in a statement.
“This is a big disappointment, as the market urgently needs a course correction to ensure that the long-term impact of CO2 emissions are not incorrectly compensated for with short-term parking of carbon in natural ecosystems.”
CMW: “Another weak point of the assessment framework is the absence of meaningful requirements for activities to have a positive effect on the Sustainable Development Goals (SDGs), or even to avoid harm through the implementation of robust safeguards. Many activities will only need to demonstrate compliance with the existing and weak requirements set by CORSIA.“
The VCM is still missing a strong regulator, Carbon Market Watch says:
Overall, the ICVCM is stopping short of sending a clear signal that a large share of the market is of insufficient quality to receive its label. As it starts vetting programmes and activity types, it will become clear whether ICVCM is willing to take concrete steps and live up to its motto of “Build integrity and scale will follow”. “The coming months will be the ICVCM’s most important test so far. We will see how far it is willing to go to exclude problematic activities from eligibility under its label,” emphasises Dufrasne.
Also of some concern to environmental groups may be the exemptions, some will say loopholes, created by ICVCM for unabated natural gas fired power in some circumstances and for hybrid vehicles.
See this section:
“The ICVCM has therefore determined that in order to ensure that CCP [Core Carbon Principles]-Approved carbon credits are not misaligned with the contribution to net zero, certain Categories are ineligible for CCP Approval.
These Categories include mitigation activities that:
—Directly lead to an increase in the extraction of fossil fuels, such as Carbon Capture and
Storage technologies used for Enhanced Oil Recovery;
—Relate to unabated coal-fired electricity generation;
—Involve any other unabated fossil fuel-powered electricity generation other than new gas-fired generation as a part of increased zero-emissions generation capacity in support of national low-carbon energy transition plans;
—Focus on road transport that rely on the continued use of solely fossil-fuelled engines.
The approach put forward by the ICVCM ensures an initial step towards aligning carbon-crediting programs and Categories that are compatible with and mindful of the IPCC recommendations and with the development and energy transition priorities of developing countries.
It allows for new net zero emissions from gas-fired generation in the context of transition planning and implementation, the use of carbon capture, utilisation and storage (CCUS) technology, as long as use of those technologies result in a net decrease of emissions, and hybrid vehicles, which represent important GHG reduction opportunities through efficiency and remain necessary elements of national policies for a large part of the world.
CCP-Approval for these approaches will require carbon-crediting programs to ensure that new or revised methodologies require mitigation activity proponents to assess the compatibility of the mitigation activity with the transition to net zero, in reference to the net-zero objectives of the relevant host country.”
Carbon Pulse clarifies
Reuters story here
Market reaction = almost zero
TROVE: ICVCM’s Core Carbon Principles narrow the gap between idealism and pragmatism
- 28 July 2023 – unedited but emphasis added in bold
Home / Reports and Commentary / ICVCM’s Core Carbon Principles narrow the gap between idealism and pragmatismTo date, the voluntary carbon market (VCM) has lacked a common benchmark for carbon credit quality. The Integrity Council for the Voluntary Carbon Market’s Core Carbon Principles (CCPs) are a step towards building greater confidence in the market.
Using Trove’s integrity assessment of over 4000 registered projects, we’ve collected the most important takeaways from the new framework to give an insight into which methodologies and projects may or may not pass the CCP sniff test.
In March 2023, ICVCM launched the finalised “Core Carbon Principles” (CCPs) – a set of ten principles defining high-quality credits with a focus on governance, emissions impact, and sustainable development.
The CCPs will be operationalised through an Assessment Framework, split into two parts. The first, the “Programme-Level Assessment Framework”, assesses the integrity of the carbon crediting programme (i.e., registry or standard) under which credits are issued and was published with the CCPs in March (watch our webinar on these here). The second, the “Category-Level Assessment Framework”, assesses the integrity of different categories/types of projects that a registry issues, and was published yesterday. The ICVCM aims to issue its first CCP labels before the end of 2023.A draft of the category-level framework was published for consultation a year ago, resulting in significant concerns among some stakeholders that the bar was set too high. Unique Trove analysis in Sept-2021 showed that very few, if any, existing projects would be CCP-eligible. The recently released final version of the Category-Level Assessment Framework incorporates feedback received and tries to strike a better balance between high standards and achievability.
Inevitably, some stakeholders have raised concerns about increasing the flexibility of the rules, with Carbon Market Watch stating that registries are being given too much leeway to justify how their own rules align with CCP criteria.
The framework, and indeed the CCPs, are not meant to assess individual projects or credits. They instead operate at a level above, assessing the registry and methodology used for issuing credits. The new Assessment Framework offers criteria and clues on which projects and project types may already be CCP compliant. Going forward, ICVCM category working groups will assess whether different categories (i.e., methodologies) meet the CCP’s criteria. Final numbers depend on how the category working groups interpret the more nuanced sections of the framework.
Category-Level Assessment Framework – What are the criteria and who will meet them
Upfront we already know some credit types will categorically be out of the question, such as ex-ante credits and any mitigation activities that directly lead to an increase in the extraction of fossil fuels.
For example, this means that credits from enhanced oil recovery would be ineligible, as would the Woodland Carbon Code’s Pending Issuance Units (PIUs, which ‘promise to deliver’ afforestation-based removal credits at a future point).
Additionality describes the likelihood that the emission reduction or removal would not have occurred in the absence of carbon credits.The most important category-level criterion for additionality is the requirement for three different additionality assurances: (i) host country legal requirements, (ii) consideration of carbon credits before project inception, and (iii) investment or barrier analysis with common practice analysis.
Existing methodologies in the voluntary carbon market often expect one or two of these tests, but not all of them together. For example, only 50% of 90 REDD+ projects and only 30% of 1830 Renewable Energy registered projects already provide evidence that income from carbon credits was considered prior to the project’s inception. Similarly, 42% of 90 REDD+ projects, 67% of 231 ARR projects, and just 3% of 514 clean cooking projects already provide evidence of either investment or barrier analysis combined with common practice analysis.
The CCPs separately lay out additionality requirements for Jurisdictional REDD+ programmes (J-REDD+), specifically requiring evidence of the consideration of carbon credits before the programme’s inception. Current methodologies do not usually require this, which could pose a problem for the various J-REDD+ programmes in development.
Despite these initial numbers, the lack of specific thresholds makes it hard to say whether individual projects/methodologies would qualify for a CCP label. For example, no requirements are set for what the investment analysis would have to prove (e.g., by how much a project’s IRR must exceed a benchmark, and what the benchmark must be) or what the market penetration threshold should be used.
Permanence defines the likelihood that the emission reductions or removals achieved by the project will be sufficiently long-term and not released back into the atmosphere. Thus, the category-level criteria for permanence are mainly applied to nature-based projects.
The most important category-level criterion is an assured credit permanence of at least 40 years from the start of the first crediting period. This will have implications for many projects in the market with much shorter crediting periods and no requirement to assure any credit permanence beyond their crediting period’s end. Across the four biggest registries (Verra, Gold Standard, ACR, CAR), less than 10% of projects have crediting periods over more than 40 years. This transfers to project types, with less than 10% of REDD+, IFM, and ALM projects having crediting periods of 40 years or longer.
To combat the risk of reversals, the CCPs state the principal buffer pool contribution for nature-based projects should be at least 20% of issuances. Only around 5% of all 145 registered IFM projects, 9% of 231 registered ARR projects, and 32% of the 90 registered REDD+ projects currently do this. The CCPs allow, however, for a smaller buffer contribution if it is proportional to the expected reversal risk over the full project length.
Based on this, it is hard to say which projects will be CCP compliant, as there are no specifications as to how reversal risks should be calculated and/or their calculation evidenced.It should be noted that the CCP criteria make an exception on permanence for jurisdictional REDD+ programmes. These must also contribute to a buffer pool in accordance with a 40-year reversal risk level, but no ongoing monitoring of permanence beyond the end of the crediting period is required.
The most important category-level criterion for carbon quantification is an insistence on conservativeness to ensure that no over-crediting takes place. Quantification methods need to be robust, baselining must consider various alternative use scenarios, and all significant sources or sinks of carbon emissions must be accounted for.Many existing methodologies already require these actions. The problem is that integrity issues are not based on whether these requirements are met, but on an interpretation of what e.g., “robust” actually means.
The assessment framework does not specify this, neither does it specify when carbon emission sources or sinks are “significant”, or when sources of leakage are “material” enough to warrant inclusion. For example, only 30% of 90 REDD+ projects currently consider market leakage in their carbon quantification and monitoring reports. Therefore, the other 70% risk failing the CCP assessment – or they may pass if their market leakage is not considered “material” – we won’t know until what’s “material” has been defined.
Sustainable development benefits and safeguards
The category-level criteria for sustainable development benefits and safeguards require confirmation that labour, local communities’ land, and other rights are respected, working conditions are fair and negative impacts on local and regional biodiversity are minimised. Much like with the carbon quantification criteria above, however, no specification is given on what this “confirmation” entails exactly, and whether there is any burden of proof beyond a simple statement in the project documentation. CCP compliance will again depend heavily on how the working group will interpret the rules.
Conclusion – What happens now?
During the second half of this year, the category working groups will start to approve programmes and methodologies, paving the way for the first CCP labels. Some methodologies and projects will be left to speculate on their status until that happens, given the subjective interpretation some rules allow. Not only that, a range of projects voluntarily go above and beyond methodological requirements. Even if a project would fulfill all CCP criteria, if the methodology it is registered under does not, and the category working groups only assess methodologies, those ambitious projects may have no chance to achieve CCP compliance until their methodologies are revised.Furthermore, the Assessment Framework makes multiple references to the “next iteration of the Assessment Framework”, which emphasises that quality benchmark over time. It is unclear what will happen to projects that meet the criteria in the first instance, but later fail to meet the CCP’s newly enhanced criteria. The risk that a project could later lose its CCP status will discourage investment – but not having this ‘removal of CCP tag’ mechanism in place means the market again lacks a chance to weed out those credits that did not stand the test of time.The same question applies, of course, to those credits that do not pass the CCP test in the first place. In a sense, the market is already working on this, with demand and prices falling for perceived lower quality credits (indeed, in our 1Q23 webinar survey over 50% of 350 respondents believed that CCP-tagged credits would receive a price premium of at least $2-5/tCO2e).Overall, the ICVCM has given us all a good view of where the VCM’s integrity journey is heading. It will be a path of stricter additionality and permanence requirements, yet final words on carbon quantification and sustainable development benefits have likely not been spoken. The coming months will be important to see how the first CCP labels play out, and what priority (and premium) these credits will take in companies’ purchasing decisions.
 Trove’s original integrity assessment covered 231 ARR projects. Since then, new projects have been added to the supply database, now totalling 516 registered ARR projects.
(Updates with Trove, Carbon Market Watch, earlier ruled-out credits section)
Updated Core Carbon Principles, Procedures: 134 pages, ICVCM, July 27