Why Government and Sustainability Leaders Are Calling for Expanded Use of Carbon Credits
The sustainability industry can seem noisy and chaotic at times, but it is the natural progress of doing and learning from climate action. We have successfully prioritized eliminating carbon emissions wherever possible; however, we are learning that is not enough. Our global carbon reduction needs are bigger than our ability to adopt zero-emission technologies. This is particularly visible as companies are increasingly unable to achieve carbon reduction targets set by leading climate action frameworks. As our progress continues to fall short, these frameworks are being forced to rethink and improve their roadmaps to better align with the real-world pace of technology transition.
At the same time, the voluntary carbon market has done its own learning and improving. It has established the first ever global quality standards for high-integrity carbon credit projects through the Integrity Council for Voluntary Carbon Markets (ICVCM). This new level of global governance combined with urgent need to increase global carbon reduction has prompted sustainability leaders in government, academia and industry to call for new and expanded use of carbon credits to help us keep pace with our climate goals.
Who is calling for new and expanded use of voluntary carbon markets?
Perhaps the most notable voice supporting carbon markets is the Voluntary Carbon Markets Joint Policy Statement and Principles released in May 2024 by the U.S. Administration, backed by the Senior Advisor to the President for International Climate Policy, the National Economic Advisor, the Secretary of Energy, the Secretary of the Treasury, and the Secretary of Agriculture. This policy asserts that voluntary carbon markets, “can and should play a meaningful role in facilitating global greenhouse gas emissions (“emissions”) reductions and removals and helping to reach global net-zero emissions by 2050 and limit warming to 1.5 °C.” (1) It recognizes that high-quality carbon credits should amplify climate action alongside aggressive carbon emission reduction. In particular, this Policy Statement calls for carbon emission reporting frameworks to allow companies to utilize carbon credits to address Scope 3 emissions that cannot reasonably be abated within the prescribed timeframe.
The Voluntary Carbon Markets Integrity Initiative (VCMI) released its Claims Code of Practice in December 2023 to drive credible, net-zero-aligned participation in voluntary carbon markets. Their release also came with support from a chorus of global sustainability leaders.
- U.S. Special Presidential Envoy for Climate, John Kerry: “Voluntary carbon markets can be a powerful tool for mobilizing the investment in innovative technologies and actions needed to keep a 1.5 C limit on warming within reach. VCMI is performing a vital service by establishing high-integrity pathways for companies to support stronger climate action while making progress toward their own net zero- goals. By creating sound guardrails for the use of high-quality carbon credits, the new VCMI guidance will provide strong assurance that this finance will help deliver the greater climate action we so urgently need.”
- Christiana Figueres, Former Executive Secretary of the UN Framework Convention on Climate Change (UNFCCC): “We are at a stage now where it is absolutely critical for businesses to deploy every tool in the box in the address climate change in a timely manner. The Voluntary Carbon Market is a key tool, and we have seen that companies who actively engage in the VCM and purchase credible and high-quality carbon credits are reducing their own emissions more quickly than their peers. VCMI’s Claims Code of Practice will help move the market away from accusations of greenwashing and towards action.”
Additionally, the Intergovernmental Panel on Climate Change (IPCC), the global authority on climate science concluded that carbon removals need to be scaled 30-fold by 2030 and 1,000-fold by 2050. Additionally, IPCC cited recent evidence showing that nature-based solutions are critical for addressing the drivers and impacts of climate change. (9) Carbon credit funding is the primary driver of nature-based and engineered carbon removal solutions.
Some of these supporters also encourage a different way to use carbon credits. Instead of simply offsetting residual missions with a matching carbon credit purchase, many leading organizations like University of Oxford and SBTi (Science Based Targets Initiative) are calling for companies to adopt carbon budgets. This involves companies setting an internal carbon price for their operations. Where it is economically viable, companies will eliminate emissions. Where it is not economically viable, companies will contribute to initiatives that reduce global carbon emissions, like funding carbon reduction projects by purchasing carbon credits. (4) Instead of just offsetting, this allows companies to make decisions that maximize the ROI of their carbon budget. University of Oxford goes a step further and advocates specifically for a carbon removal budget with company carbon budgets. (14) Dr. Ben Caldecott says carbon removal, “is mission critical for tackling climate change. To limit global warming, we need to level off the cumulative stock of carbon in the atmosphere and achieve the state of net zero, when all emissions that can be eliminated are, and any residual emissions are neutralized by durably removing carbon from the atmosphere. (12)
Why do we need to expand the use of carbon credits?
To prevent the worst impacts of climate change and preserve a livable planet, we need to reach net zero by 2050. Unfortunately, we’re falling behind. (5) Current practices are not reducing global emissions fast enough. The gap between climate commitments and the 1.5°C pathway is growing. Modelling predicts that the world is on track for a temperature rise of over 3°C. (6) A single focus on companies eliminating emissions is not enough. We need to deploy more solutions that can help us bring down carbon emissions globally.
Setting and committing to net zero targets under leading climate action frameworks like SBTi is the first and most important step. Companies with net zero targets reduce emissions faster and those with more sophisticated targets cut emissions even faster.(13) However, evidence from new modelling indicates there is a strong likelihood of companies missing near- and long-term net zero targets, risking an overshoot of the Paris Agreement’s objectives.(6) A survey by Accenture of its G2000 companies shows that, “To date, 93% of companies with net zero commitments will miss their targets.”(13) Even the most committed companies are simply unable to eliminate emissions fast enough. In aggregate, total Scope 1 & 2 targets are missed by 26% of target reduction volume, and Scope 3 targets by 62%, annually. (15)
This broad level of under-performance is not a failure of companies. It is an indication of flaws in the frameworks, specifically in holding companies to unreasonable timeframes for fully abating emissions. Real world challenges like the absence of viable net zero technologies and the complexity of global supply chains have shown that companies cannot simply eliminate their own emissions as fast as they want to. The rate of emission reduction prescribed by these frameworks is faster than technology availability and transition can support.
No one likes being held to unachievable standards. In 2024, SBTi participation started to move in the wrong direction. Elizabeth Sturcken, MD, Corporate Partnerships, Environmental Defense Fund, said: “SBTi’s previous approach to Scope 3 was not working for many companies – especially those with immensely complex global value chains.” (3) Many companies with ambitious climate goals and talented sustainability teams are pausing SBTi because of this. These companies remain committed to aggressive, world-leading climate action. They are just unable to achieve SBTi’s requirements. Microsoft, Procter & Gamble, Unilever and Walmart are among the most prominent corporations now listed as “commitment removed” by SBTi. Intel declined to participate with SBTi. Nvidia also does not follow SBTi’s standards. Amazon had its “commitment removed” last summer. (8) SBTi surveyed 971 companies. “Around half of the companies which responded to the survey cited Scope 3 being too much of a challenge as a barrier to setting net-zero targets.” (8) This is taking us in the wrong direction. We must also prioritize maximum participation. We need frameworks and solutions that bring more companies into climate action.
To be clear, climate action frameworks like SBTi have driven a tremendous amount of carbon reduction and set our north star for climate sustainability. However, after serious efforts by industry, we now know that focusing exclusively on eliminating emissions is not enough. Carbon reduction frameworks must recognize the limitations of zero emission technology availability and adoption. We need voluntary carbon markets to rapidly scale global carbon reduction in the short run as we work to eliminate emissions in the long run. The Intergovernmental Panel on Climate Change (IPCC) has stated that global emissions must peak before the end of 2024, and almost halve by 2030, and that carbon removals funded by carbon credits must be deployed at considerable scale.(6) Carbon credit investment also channels finance to where it is desperately needed, including the global south, carbon dioxide removal technologies, forest and biodiversity conservation, and delivery of the United Nations Sustain able Development Goals (UN SDGs).(6)
Government and sustainability leaders also recognize that we can’t keep doing the same thing and expect a different result. Progress is about building on successes and correcting weaknesses. This is why leaders across the world are calling for expanded use of carbon offsetting. SBTi is also evaluating the potential to allow carbon credits for Scope 3 emissions. In its latest announcement, SBTi recognized that improvements are needed for its Scope 3 guidance. It is conducting a scientific review of its current Scope 3 methodology and the effectiveness of market-ready solutions to help address Scope 3 emissions. (4)
Leading corporate sustainability departments see this too. This is precisely why companies continue to invest in robust and impactful carbon offsetting programs. Many companies report into multiple climate action frameworks, but they also chart their own course on climate action based on what they determine to be responsible and impactful strategies to mitigate climate change. This includes companies like Apple, Volkswagen, Salesforce, L’Oreal, Microsoft, Air France, McKinsey & Company, Air Canada, and many more. In fact, contrary to what we might hear in the media, real industry data shows that carbon market participants have a higher commitment to overall carbon reduction than others in their industry. Purchases of carbon credits are a clear sign that an organization is willing to take voluntary action to address climate change. Industry data clearly shows that they are going to follow the leading principles of climate action, which is to eliminate emissions first and fund global carbon reduction second, to balance their remaining emissions. (10)
Are carbon credits are getting better?
Yes. Over the past year, the voluntary carbon market has made big advances in global governance to ensure consistent quality across carbon reduction projects. It is important to remember that the voluntary carbon market is relatively young. There are no regulations; just companies and people wanting to reduce carbon emissions. Registries like Gold Standard, American Carbon Registry, Verra and Climate Action Reserve did amazing work to build a robust and scalable platform of verified and validated projects around the world. The voluntary carbon market has already achieved tremendous environmental benefits for all of us.
However, the voluntary carbon market was lacking consistency. The criticisms of the past few years have been valuable for identifying these inconsistencies. When carbon credit projects are done with high integrity, they achieve effective carbon reduction. We learned that we need independent global governance that has no connection to the success or failure of any given project or project methodology. The Biden-Harris Administration agrees, believing that voluntary carbon markets can drive significant progress toward our climate goals if action is taken to support robust markets undergirded by high-integrity supply and demand. (1)
The Administration’s Principles for high-integrity carbon offsetting include:
- Carbon credits should meet credible atmospheric integrity standards and represent real decarbonization.
- Credit-generating activities should avoid environmental and social harm and should, where applicable, support co-benefits.
- Corporate buyers that use credits should prioritize measurable emissions reductions within their own value chains.
- Credit users should publicly disclose the nature of purchased and retired credits.
- Public claims by credit users should accurately reflect the climate impact of retired credits and should only rely on credits that meet high integrity standards.
- Market participants should contribute to efforts that improve market integrity.
- Policymakers and market participants should facilitate efficient market participation and seek to lower transaction costs.
New global governance has emerged to ensure these principles are followed and hold projects accountable to high-integrity standards that we need to massively scale impactful carbon reduction. (1) Notable developments include:
- The emergence of multi-stakeholder initiatives that have set out standards and principles for high-integrity credit development and responsible credit use.
- Improvements to key crediting methodologies, their guiding standards, and tracking systems.
- New and improved analytical products and services that aim to strengthen credit transparency and quality comparability, such as carbon credit rating services.
- Technologies to support robust measurement, monitoring, reporting, and verification (MMRV).
- Multilateral rules, guidance, and procedures developed under Article 6 of the Paris Agreement and the international aviation sector’s global carbon market-based measure, which shape certified emissions reductions and removals that often find their home in VCMs2; and
- Advances in the development of market infrastructure to improve transparency and liquidity, as well as the integrity of market transactions.
Specifically, the introduction of ICVCM has successfully established a global governing body to police participants in the market. Terrapass supports ICVCM as the new global standard for carbon reduction project integrity. ICVCM approved projects adhere to their Core Carbon Principles (CCPs). (11)
- Effective Governance, Tracking, Transparency and Robust Independent Third-Party Validation
- Additionality, Permanence, Robust Quantification, No Double-Counting
- Sustainable Development Benefits and Safeguards
- Contribution to Net Zero Transition
Anna Lerner Nesbitt, Climate Collective CEO and former Lead, Project17 and Global Strategic Partnerships, Meta, said: “We’re running out of time and are spending so much of our energy in-fighting. We need all the solutions. “Carbon markets have spent the last two years strengthening process integrity and a myriad of new technologies and providers are shoring up data integrity. We should celebrate the progress and start using this instrument to its full potential. I am grateful to the Science Based Targets initiative board for recognizing that.” (3)
Additionally, the voluntary carbon industry has started to develop and grow its carbon removal capacity. Oxford Principles has done a great job of identifying the most impactful types of carbon credit projects. They prepared valuable guidance that first grounds itself in reality by understanding technologies available today. It then sets a path for future by identifying what kind of technology development and adoption is possible and needed to achieve our climate goals. The Oxford Principles path starts with a blend of carbon removal and reduction credits that are readily available today, with increasing adoption of durable removal credits over time as the technology and industry develop to scale. (9)
Governments are also playing an increasingly important role in carbon credit markets. For example, regulators in the EU (CSRD) and California (AB-1305) have incorporated carbon credit disclosure standards that require companies to clearly identify any climate claims backed by carbon credits. This provides much improved transparency. Like the Securities and Exchange Commission ensures that investors have clear and consistent information about company financials, EU CSRD and CA AB-1305 ensure that investors and individuals have clear and consistent information about a company’s climate claims. Sustainability reporting has moved from marketing into the world of regulated disclosures with many benefits.
At Terrapass, we see first-hand the power of carbon markets to unlock immediate and large-scale global carbon reduction. We also enthusiastically welcome new global standards and regulations that continue to increase quality and transparency in climate action. We’re excited to see others recognize the great climate benefits that come from growing high-integrity voluntary carbon markets.
References:
- Voluntary Carbon Markets Joint Policy Statement and Principles
- New VCMI Guidance Opens Door for Corporate Carbon Credit Claims
- Why is the SBTi advocating the Carbon Offsets Market?
- Statement from the SBTi Board of Trustees on use of environmental attribute certificates, including but not limited to voluntary carbon markets, for abatement purposes limited to scope 3
- United Nations
- Ieta.b-cdn.ne
- Air New Zealand scraps its 2030 carbon emissions target, saying solutions are costly and scarce (msn.com)
- Trellis.net
- Smithschool.ox.ac.uk
- Reuters.com
- Icvcm.org
- Researchers propose ‘carbon removal budget’ to tackle climate change (msn.com)
- Accenture.com
- The Carbon Removal Budget: theory and practice (tandfonline.com)
- Leta.org
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