With thanks to Josh Margolis
Isla Binnie: In its paper, Kimmeridge proposes using a common scale to grade all types of projects. It compares voluntary carbon markets with the bond market, setting out a chain of four participants: regulator, auditor, rating agency and buyer pool.
This is well meaning, but ultimately milquetoast, advice. At best you’ll get shades of gray (not green) and ‘quality is in the eye of the beholder,’ results.
To meaningfully improve the integrity of voluntary — and compliance-grade — offset markets policymakers should:
✅Require offset developers/suppliers to apply to, and secure approval from, regulators for the underlying emission reductions.
✅Require offset developers to be subject to permits with enforceable limits and consequential sanctions for violations.
✅Require offset developers to stand behind and make good on offsets at the time of registration, use, and everafter. Known as “seller liability,” this is a bedrock principle that has been at the core of Clean Air Act Title I criteria pollutant offset markets for >40 years. Candidly, “buyer liability” — the Daliesque/Escheren concept where the buyer (or its private sector agent[s]) is saddled with the responsibility of performing offset due diligence (particularly with respect to determining if the credits are — and shall forever be — real, quantifiable, permanent [for the life of the credits], surplus [to that which is otherwise required], and enforceable), is ultimately responsible for the actions of the offset provider, and must replace credits that ‘go bad’ — outsources responsibilities that logically should be owned by the offset developer/first provider (or its/their agent) and enforced by the government — and was an interesting, but ultimately, unworkable departure from the norm.
✅Disallow credits that are derived from project activities which coincidentally result in violations of non-GHG (and perhaps ESG-related) environmental laws.
✅Encourage offsets that are either: (a) derived from jurisdictional activities where emissions from an entire jurisdiction are included in the net emissions calculations and for which the relevant authorities are on the hook to deliver, maintain, and backstop; or (b) nested projects within such jurisdictions.
✅Include an insurance buffer pool funded by shaving a portion of offset applications that can be drawn upon in the event that offsets subsequently go bad and/or a developer fails to rectify problems.