COMMENT: The Rise of Co-Benefits

Published 19:31 on August 25, 2022  /  Last updated at 20:08 on August 25, 2022  /  Africa, Americas, Asia Pacific, Australia, Aviation/CORSIA, Canada, China, China's Offset Market, Conversations, EMEA, International, Japan, Kyoto Mechanisms, Mexico, Middle East, Nature-based, New Zealand, Other APAC, Paris Article 6, South & Central, South Korea, Switzerland, US, Voluntary Market  /  No Comments

Co-benefits are slated to play a critical role in voluntary carbon markets, but only if they can evolve, writes David Chen, program development manager at ClimeCo.

The Rise of Co-Benefits

Co-benefits are slated to play a critical role in voluntary carbon markets, but only if they can evolve

By David Chen, Program Development Manager, ClimeCo

It is not a coincidence that co-benefits are gaining attention during a time when voluntary carbon offsets are becoming an integral and publicly scrutinized tool for meeting emissions reduction targets. New data shows that there is a sharp rise in demand for certified co-benefits- so what are the trends driving buyer demand, and how do the standards certifying co-benefits need to evolve to keep the demand coming?

Demand for co-benefits is on the rise, and the “co-benefit premium” is here to stay

The markets have recently bore witness to a significant rise in demand for co-benefits across the board. Currently, most co-benefits created from a carbon offset project, such as biodiversity, sustainable development, and climate resiliency, are accounted for by leveraging a standard that integrates co-benefit accounting into the development of the offset itself or by adding an additional certification to a standalone carbon standard.

Ecosystem Market’s most recent State of the Voluntary Carbon Markets report noted that credits sold in 2021 from projects with co-benefit claims had a clear price premium over the global benchmark.

Offset prices increased the most for carbon standards with integrated co-benefit accounting, with Gold Standard and Plan Vivo seeing a 35% and 15% increase in weighted average price, respectively, from 2020 to 2021. Perhaps even more impressively, the volume of credits sold from VCS during the same period with the Climate, Community, and Biodiversity Standards (CCB) certification increased by over 277%, and credits with The Sustainable Development Verified Impact Standard (SD Vista) label increased by 715%. The demand for co-benefits has arrived, and a few developing trends are likely to strengthen demand in the future.

Co-benefits are becoming an indicator of high-integrity carbon offsets as buyer scrutiny increases

In recent years, the voluntary carbon markets have expanded with new carbon offsetting standards offering their take on a carbon offset. In this rapidly evolving space, buyers are seeking certainty that the voluntary markets will act as an effective tool for reaching a transition to 1.5 °C and have pushed for standardization in the voluntary markets to improve the integrity of offsets. As evident by the recent release of the Integrity Council for the Voluntary Carbon Market (ICVCM)’s draft Core Carbon Principle Assessment Framework and Assessment Procedure, this rising bar extends beyond just the carbon emission reduction claims associated with the carbon credit.

Although many carbon offset projects are delivering on their promise to positively impact the well-being of local communities and ecosystems, several projects of late have been placed in the spotlight over accusations of human rights violations such as ignoring the land rights of indigenous people. The potential for negative social and non-carbon environmental impacts associated with a low integrity carbon offset project are becoming a material concern for buyers. In response, buyer expectations that carbon offset projects ensure strong environmental and social safeguards are rising.

Even with the rising standard for carbon offset integrity, buyers know that projects with poor social and environmental safeguards exist and are taking action to avoid the often-irreversible damage that can be caused by being associated with one of these projects. Buyers recognize that social and environmental safeguards are fundamental to making credible co-benefits claims and are gravitating towards projects with audited and verified co-benefits to reduce the exposure to this reputational risk.

As voluntary carbon commitments become business-as-usual, co-benefits will play a critical role as a market differentiator

Meeting voluntary carbon emission reduction targets will not be the sole use case for carbon offsets in the future. In the present day, making progress towards voluntary carbon commitments is an important way for organizations to demonstrate above-and-beyond efforts to honor their social contract. However, as voluntary climate commitments become commonplace and mandatory carbon emission regulations tighten, buyers will seek more ways to differentiate themselves from their competitors.

Ernst & Young’s recent report predicts that amidst these trends, co-benefits will play an important role in demonstrating a company’s brand values and setting itself apart from its competition. As other market-based solutions for environmental and social impacts such as biodiversity and water quality remain largely novel or geographically limited, carbon offsets represent the most familiar and accessible vehicle for buyers to access and claim social and non-carbon environmental benefits.

How do standards that certify co-benefits need to evolve to meet buyer expectations? 

The standards that verify and certify co-benefits today are by no means perfect. Current and emerging standards seeking to account for co-benefits need to continue to mature if they expect to meet the growing expectations of the market.

Standards will need to implement more rigorous requirements and effective procedures beyond those utilized today to demonstrate that adequate environmental and social safeguards are in place. At a minimum, this includes requiring a higher burden of proof during the registration, validation, and reverification process and developing more accessible and accountable processes for reporting and investigating claims of impropriety.

Moreover, standards need to foster greater transparency about the claims that can be made around co-benefits. It needs to become an industry custom that any uncertainty in the additionality or measurement of a co-benefit is communicated clearly to buyers.

Lastly, in the near future, the only co-benefits that will be allowed to be claimed are those that are independently verified by a third party. The ICVCM has already proposed that all Sustainable Development Goal (SDG) impacts and climate adaptation claims use standardized methodologies certified/verified by a third party. With that said, many co-benefits are not being accounted for today. Standards will need to work quickly to create new methodologies and retool existing ones to meet the expanding buyer appetite for differentiated co-benefits.