By Hugh Salway, Head of Environmental Markets, Gold Standard
There’s an old saying that you wait ages for a bus and then two come along at once.
The same could be said of documents that will shape the future of the voluntary carbon market.
On Jan. 27, the Taskforce for Scaling the Voluntary Carbon Market published a blueprint to drive a 15-fold increase in the voluntary market by 2030. The next day, the Science Based Targets Initiative consulted on a framework for companies to bring their emissions down in line with a 1.5C trajectory, and how the voluntary carbon market can be used along the way. Both, in their own way, sketch out the outlines of a new framework for voluntary action.
This week, Gold Standard published a consultation outlining proposals to update our rules to align with a third significant document due at year end: guidance on international carbon trading rules under Article 6 of the Paris Agreement.
This alignment with the Paris Agreement is essential not just for Gold Standard but for the voluntary market as a whole. Not only will it help to standardise minimum quality criteria for carbon credits; it will also ensure voluntary action can work in step with governments’ plans, driving further action rather than displacing, delaying, or undermining ambition.
A core issue is whether carbon credits that will be claimed for offsetting emissions will need a ‘corresponding adjustment’. That is, can the country that hosted the crediting project claim the emission reduction or removal towards their nationally determined contribution (NDC), when it is also used to offset a company’s emissions?
For Gold Standard, it is clear that a corresponding adjustment will be needed in the future when a carbon credit is used to offset emissions. The promise of carbon offsetting is that where an organisation or individual emits, the atmosphere is no worse off as the emission is compensated elsewhere. Without a corresponding adjustment working in tandem with other measures such as additionality, we cannot be sure that this promise will be kept.
The reason is that the Paris Agreement requires governments to set NDCs, and also to pursue mitigation measures to achieve them. Where a government is able to claim the reduction or removal from voluntary market projects towards their NDC, they may choose not to implement measures they had planned – raising a carbon tax for instance – and decide instead to rely on the emission impact of the voluntary projects.
This might not seem to matter – the NDC is met either way and international accounting under Paris remains accurate. But it does matter. The company that has bought that carbon credit claims the atmosphere is no worse off, despite their continued emissions. Whereas it may very well be. Their emission has occurred, and instead of being ‘offset’ by an additional reduction or removal elsewhere, it has been matched with a credit that may have displaced action that would have achieved the same emission impact.
This won’t always happen. In some cases, for instance, host governments may still implement their plans and voluntary action will sit on top of this, enabling them to exceed their NDCs. But without safeguards – through a corresponding adjustment – we cannot say for sure that emissions are genuinely offset. As the body issuing the credits, the question we have to ask is whether we are willing to give our approval to a product where we cannot say with certainty that it delivers what it says it does. The answer, for Gold Standard, is obvious.
More generally, if we let that uncertainty and illegitimacy creep into the carbon market, we risk once again throwing the doors open to criticism, losing credibility and public trust. This would inevitably lead to a collapse in demand and much needed investment to address the climate emergency. We’ve seen this story before. It’s one we don’t wish to repeat.
A counterargument is that the voluntary market is not large enough for this to be a material risk. But remember, the target pointed to by the Taskforce for Scaling the Voluntary Carbon Market is for a 15-fold increase in market size to 2 billion tonnes in 2030. Looking at the most recent UNEP Gap Report, that 2 bln tonnes is a full two-thirds of the difference between 2019 global emission levels and those expected in 2030 if countries deliver on their unconditional NDCs. The comparison might not be perfect, but the message is clear. We desperately need that 2 bln tonnes, and more. But we need it to come in addition to governments’ planned ambition, not instead of it.
Gold Standard understands the additional complexity introduced by the requirement for a corresponding adjustment for carbon offsetting claims. That is why we plan to do two things: first, ensure an equitable transition to these new conditions, and second, enable alternative claims for credits without corresponding adjustments.
Gold Standard’s requirements for corresponding adjustments will be rolled out over time, to give developing countries time to prepare once Article 6 rules are in place, and to give countries with the least capacity a little longer still. This is both practical and equitable. We also plan to work with our project developers and governments to help them prepare for and work within this ‘new normal’ for carbon offsetting.
We also see the transition to the Paris context as an opportunity to re-think which claims are fit-for-purpose for the long term. There is growing recognition of the role for ‘financing’ claims’, through which carbon units without corresponding adjustments may still be bought and retired for corporate climate goals, where companies wish to claim to have financed reductions or removals equal to their unabated emissions, but not to have offset these.
In a future commentary, we’ll share more about these new claims, and their potential to leverage the advantages of current market infrastructure, avoid complexity, and communicate with clear and credible claims that maintain stakeholder trust.
Gold Standard welcomes input to our proposed updates to carbon crediting project requirements. We welcome further engagement across the voluntary market to build for this new normal. And we look forward to helping to scale credible climate solutions to achieve climate security and sustainable development for all.
As Head of Environmental Markets at Gold Standard, Hugh oversees Gold Standard’s market-related strategy and policy work. Hugh worked for nearly a decade on climate policy at the UK government, including leading its work on international carbon markets.