What Does the New VCMI Code Mean for Carbon Credit Usage?
The carbon credit/carbon offset market has been a topic of both celebration and contention. Purchasing carbon credits can fund climate benefit projects like reforestation that ultimately help the world mitigate climate change. Yet the lack of global regulatory clarity has coincided with confusion, risk, and sometimes even deception within the voluntary carbon market.
However, new rules and universal best practices are emerging in ways that will:
- Improve quality within voluntary carbon markets
- Increase businesses’ confidence in funding climate benefit projects
- Bring clarity to consumers and other stakeholders around companies’ sustainability credentials
One of the most significant developments in this area has been the June 2023 release of the Voluntary Carbon Markets Integrity Initiative (VCMI) Claims Code of Practice. While not a panacea, this code is an important step forward toward companies being able to reliably use carbon credits in ways that are aligned with scientific best practices.
What Is the VCMI Claims Code of Practice?
Following a provisional release last year, the VCMI’s new Claims of Code of Practice specifies how businesses can make trustworthy claims related to the use of carbon credits in ways that are aligned with the Paris Agreement.
The code includes four steps to make VCMI Claims:
1) Comply with VCMI foundational criteria
To start, businesses that voluntarily comply with the code need to meet foundational criteria, such as setting science-based near-term emissions reduction targets, along with publicly committing to reaching net zero by 2050.
However, reducing emissions and reaching net zero isn’t just a matter of buying carbon credits to offset emissions. While there’s flexibility in terms of which net zero framework to use, companies have to disclose “globally recognized sustainability frameworks or guidance” they’re using, VCMI explains.
Under the Science Based Targets initiative (SBTi), for example, carbon credits don’t count as reductions in terms of reaching near-term targets. SBTi’s Corporate Net-Zero Standard also says that most companies need to cut 90% or more of emissions, and then use permanent carbon removal and storage to offset residual emissions.
2) Choose a VCMI Claim
After meeting foundational criteria, businesses can make one of three VCMI Claims. The three levels correspond to companies purchasing and retiring high-quality carbon credits equal to the following percentages of their remaining emissions for the most recent reporting year:
- VCMI Platinum: 100% or more
- VCMI Gold: 60% to < 100%
- VCMI Silver: 20% to < 60%
Again, these credits are not a substitute for emissions reductions; they must be used “to finance additional climate mitigation” while the company also works toward meeting near-term emissions reduction targets, as VCMI explains.
3) Meet Carbon Credit Usage and Quality Requirements
When using carbon credits to make VCMI Claims, companies also need to follow certain requirements. For one, carbon credits will need to be CCP-approved when available, meaning they meet the standards of the Integrity Council for the Voluntary Carbon Market (ICVCM) Core Carbon Principles.
Companies also have to disclose details about the carbon credits they use, like project IDs and methodologies.
4) Get Third-Party Assurance
Lastly, companies will need to get independent, third-party assurance that they’re meeting the requirements for making VCMI claims. This assurance will need to adhere to the VCMI Monitoring Reporting & Assurance (MRA) Framework, which is set to be published in November 2023.
What Are the Benefits of Making a VCMI Claim?
By following these rules and making VCMI claims, your business can communicate to stakeholders that you’re using carbon credits and working toward net zero in a way that’s aligned with reaching the Paris Agreement goals.
Rather than stating that your business is carbon neutral solely by way of carbon offsets, for example, you might state that your business is VCMI Platinum, signifying that you’re funding climate benefit projects while working toward science-based emissions reductions.
Taking this approach, rooted in climate science, can help win over doubters who are put off by low-quality carbon credits plaguing the voluntary carbon market.
Bad actors can sour the market, but new standards, like those set by the VCMI and ICVCM, are helping to change stakeholder perceptions while supporting important goals, like trying to limit global temperature increases to 1.5 degrees Celsius.
Part of the debate over carbon credits is that some stakeholders see global climate regulation as the only way forward. If countries and companies were aggressively regulated and taxed in order to meet the Paris Agreement goals, then the carbon credit market as we know it might not be necessary.
The reality, however, is that we’re closing in on a decade passing since the Paris Agreement. The climate picture is arguably bleaker than it was then, as evidenced by the most recent IPCC report. The political will to meet these goals in their entirety just doesn’t seem to be there, so supplements like funding climate benefit projects to meet VCMI Claims should be taken seriously.
What Will Happen to Carbon Markets Going Forward?
The new VCMI rules are an important step for carbon markets, and other organizations are also moving forward with related rules around carbon credits and climate claims.
For example, the U.S. Commodity Futures Trading Commission (CFTC) is cracking down on fraud in carbon markets, such as double counting and fraudulent statements about carbon credit terms.
While that might sound negative for carbon markets at first glance, going after bad actors could help bring confidence back to high-quality carbon credits. Highly regulated securities like publicly traded stocks give investors confidence that they’re getting what they pay for when they buy shares, and ideally the same should happen in carbon markets.
New disclosure standards from the International Sustainability Standards Board (ISSB) should also help. As part of these standards (which regulatory agencies around the world could use as a model for future regulation), companies need to disclose how carbon credits fit into any net greenhouse gas emissions targets.
So, these types of frameworks could bring further confidence to carbon markets, as consumers, investors, and others will be able to more clearly understand how carbon credits fit into a company’s operations.
Rather than assuming a company is green washing when using terms like carbon neutral, for example, they will be able to make more informed judgments.
If a business has not been able to cut emissions significantly but still invests heavily in climate benefit projects, that does not mean the business is inherently sustainable. But stakeholders at least have the clarity to decide whether they want to engage with that business vs. others that might be polluting without also giving back as much to climate mitigation efforts.
Meanwhile, businesses that can both cut emissions and fund climate benefit projects, like those that make VCMI claims, can stand out from competitors that lack the same veracity of their sustainability efforts.
Some of these rules and standards will take time to solidify, but businesses that want to get a head start on measuring, managing, and marketing their carbon footprint strategies can do so through Terrapass and our vetted, high-quality partners.
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