Rules for voluntary carbon markets pick up pace

Bumper week for VCM includes new guidelines from Oxford University and SBTi, and calls for more regulation

The voluntary carbon markets got another pummelling this week, when experts at the University of Oxford said the “vast majority of offsetting approaches are not getting us any closer to net zero emissions”.

The remarks were made as Oxford updated its flagship principles for carbon offsetting, launched in 2020 and used by companies like UK tech firm SMC Corporation and Danish furniture retailer TAKT.

The report’s authors called for “a major course-correction”, including a shift away from credits generated by projects that avoid emissions, towards those that remove carbon from the atmosphere.

In a statement alongside the update, Injy Johnstone, a research associate within the university’s sustainable finance group, noted that “trust in the concept of ‘offsetting’ has been so badly damaged that some organisations are moving away from using the term at all”.

Beyond-value-chain mitigation

Instead, a new phrase is emerging: ‘beyond-value-chain mitigation’, or BVCM.

Technically, BVCM means the same thing as offsets – buying carbon credits to help reduce emissions outside of a business’s own operations. But in practice, big players like the Science-Based Targets initiative (SBTi) and the UN are using it more specifically to refer to the purchase of carbon credits once a company has met its entity-level decarbonisation targets. In other words, credits can’t be counted towards annual net zero targets, because those should be achieved by actually reducing operational emissions.

“Companies are starting to talk about their contributions to climate change mitigation, rather than claiming to be carbon neutral themselves,” explains Benja Faecks from NGO Carbon Market Watch.

“They’ll continue to buy carbon credits based on their outstanding emissions, but acknowledge that those credits don’t compensate for their own activities – they just support broader efforts for climate change mitigation.”

SBTi yesterday issued two sets of BVCM guidance: the first about how companies can design and implement BVCM strategies, and the second on “accelerating corporate adoption” of the approach.

A shift from credits to partnerships?

Faecks adds that the move away from ton-for-ton offsetting towards a more narrative approach could change the way the market works.

“It means firms will be less reliant on traditional carbon credits, bought through intermediaries. They can source suitable projects elsewhere, because the emphasis will shift to the credibility of the activity, not the label.”

She predicts this evolution will drive more BVCM-linked partnerships between large companies and projects that could help decarbonise their sector or country, such as non-patented R&D.

Mark Kenber, the Executive Director of the Voluntary Carbon Markets Initiative (VCMI), sees the same trend.

“Companies will start to frame some of these projects as partnerships, where they work with specific organisations within their value chains or industries to drive relevant, transformational change,” he says. “So, there will be new ways of storytelling, which will more coherently link corporate action to global and national decarbonisation.”

Coordinating initiatives

VCMI was set up in 2021 to set clearer global expectations for how entities should purchase and account for carbon credits. At the tail end of last year, it published its Claims Code, which companies can use to show their alignment with good practice.

On Monday, management consultancy Bain & Co became the first organisation to make a claim using the new code. It committed to buy and retire enough high-quality carbon credits to cover all the emissions remaining after it had decarbonised enough of its own operations to meet its short-term SBTi target.

VCMI’s sister body, the Integrity Council for Voluntary Carbon Markets, is focused on setting standards for the generation of carbon credits. The first credits using its new label are due this year.

The pair have partnered with SBTi and the Greenhouse Gas Protocol to create an ‘end-to-end integrity framework”, which pulls together the various standards, and harmonises some of the terminology. According to Kenber, the point of the framework is to “help companies navigate the entire process, from calculating footprints and setting targets, to deciding which units to buy and how to account for them. And then how to report on all that.”

Simon Puleston Jones, founder of consultancy Emral Carbon, welcomes the move.

“Buyers need something to hang their hat on, rules they can follow to avoid reputational and regulatory risks,” he says.

This need is only likely to become more pronounced as broader greenwashing rules come in, meaning “some of the accusations tied to offsets will lead to fines rather than just bad headlines,” he adds.

Emerging regulation

The authors of Oxford’s guidelines argue that, while voluntary standards bring some clarity to the market, “regulation is now urgently needed… to steer the market away from low-quality credits and low-integrity offsetting strategies”.  

There have been developments on this front over the past few months.

IOSCO, the Board of the International Organisation of Securities Commissions, will next week close a call for feedback on a “proposed set of Good Practices… that relevant regulators and other authorities or market participants could consider” when strengthening rules around the voluntary carbon markets.

In December, the US Commodity Futures Trading Commission proposed guidance “to advance the standardisation of voluntary carbon credit derivative contracts in a manner that fosters transparency and liquidity, accurate pricing, and market integrity”.

Just days later, the Netherlands, Germany, France, Spain, Finland and Austria proposed a framework “to prevent greenwashing and restore integrity in voluntary carbon markets,” focusing on the way claims are made.

“Regulation is clearly coming, although for several companies, they will want to hold back until they actually see it, for fear of ending up on the front page of national newspapers for the wrong reasons,” says Puleston Jones.

“But at least we’re starting to see a way to thread the needle.”