By Chris Leeds, Executive Director, Standard Chartered
The voluntary carbon market (VCM) is essential to keeping the world on track for a ‘Paris-aligned’ scenario. This means limiting global warming to 1.5C above pre-industrial levels. The first priority, of course, is that businesses reduce their emissions wherever possible – even where doing so is difficult and painful. Along that reduction journey, companies should buy good quality carbon credits that fund climate action to cover their existing emissions in any given year. Without that, there is simply no pathway to achieving emissions reductions in line with Paris.
This has a double benefit. By purchasing such credits – provided that they are of high-quality – businesses put a price on their own emissions and sponsor initiatives that protect nature’s ability to remove carbon from the atmosphere, as well as reduce carbon emissions elsewhere. Many of these schemes have significant additional social and environmental benefits (‘co-benefits’, in the jargon). Protecting Latin American rainforests – for example – captures carbon but can also protect biodiversity, save endangered animals from extinction, create sustainable jobs and prevent the contamination of local drinking water. These are positive side-effects of the voluntary carbon market and businesses that purchase carbon credits are often – rightly – very proud of the beneficial impact that those credits can have.
The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) – which is comprised of more than 250 global businesses and NGOs – is focussed on building the infrastructure and governance to make the voluntary carbon market (VCM) work better. We need better governance and we need more transparency – above all, we need to build trust by ensuring that the carbon credits companies purchase are of high-quality. We are looking closely at what should count as a carbon credit – what does it mean to really invest in the avoidance and reduction of carbon emissions? And the question of what ‘co-benefits’ count is a significant part of that conversation. This is a technical question and one which attracts a great deal of debate but the TSVCM has collectively arrived at a solution which we believe will help maintain quality in the voluntary carbon market, increase transparency and also create a mechanism to develop an appropriate pricing benchmark for ‘co-benefits’.
The Core Carbon Principles (CCPs) allow standardisation of carbon credits within the VCM. It will allow comparison of different carbon standards and projects. It will also give project developers a clear quality threshold that they need to meet. They should be viewed in the same way one would view food standards and they will be overseen by an independent governance body. The Additional Attributes allow us to be more differentiated in our approach. They ‘mark’ certain attributes such as the removal of carbon from the atmosphere or avoided emissions, a nature or technology-based project, or co-benefits.
The TSVCM is explicitly including co-benefits as Additional Attributes to classify carbon credits. Businesses can gain recognition for many of the beneficial ‘side effects’ of the carbon projects they support. These co-benefits will include many of UN sustainable Development Goals (UN SDGs) – clean water and sanitation, for example, or affordable and clean energy. For any carbon credit to be legitimate and recognised it must support one SDG at least – the call from the UN for ‘climate action’ (SDG 13). This will allow exchanges to list products with co-benefits allowing benchmarks to develop, which can be used to price projects with even more granularity, bringing greater transparency and understanding of the value of these co-benefits.
Where there has been some misunderstanding is that carbon credits do not need to meet all 17 of the SDGs in order to count, nor do we believe that the Additional Attributes should be defined exclusively by the SDGs. Investing in a scheme that promotes ‘quality education’ is a profoundly positive thing for a business to do. But without a verifiable impact on carbon emissions and on climate, it is not, on its own, a valid carbon credit investment – in spite of its merits. Likewise, to discount an initiative because it delivers real emissions compensation and some additional social or environmental benefits but does not meet all of the UN’s SDGs is counterproductive and a real disincentive for companies looking to do the right thing through the voluntary carbon market.
We need a voluntary carbon market that works more efficiently is trustworthy and delivers on the Paris Agreement. That means that it has to retain its focus. Carbon credits are primarily a tool for preventing climate change. In the process they deliver much additional good, primarily in developing countries. The TSVCM will recognise this additional good. We simply need to ensure that we get the balance right – so that the ‘co-benefits’ many carbon credits deliver are recognised and appropriately priced whilst emissions abatement remains the central purpose.
Chris Leeds is an executive director at investment bank Standard Chartered and a member of the TSCVM operating team