Core Carbon Principles: Clear Rules for Carbon Markets at Last?
By David Oliver
As the world moves towards more sustainable practices and greater focus is placed on addressing climate change, carbon credits have emerged as a key tool in the transition towards net-zero.
Carbon credits, which represent a reduction or removal of a metric tonne of carbon dioxide equivalent (CO2e) from the atmosphere, can be bought and sold in the carbon market to offset emissions and support projects that contribute to sustainable development. In recent years, various quality labels and certification programs have been established to ensure the environmental integrity of carbon credits and provide transparency to buyers and investors.
One of the challenges this creates, however, is a lack of harmonization and standardization among different quality labels and certification programs. Each program has its own set of criteria, methodologies, and verification processes, which can vary widely in terms of rigor and stringency. This lack of consistency can create confusion among buyers and investors, and make it difficult to compare and assess the quality of carbon credits from different programs.
The Core Carbon Principles (CCPs), released by the Integrity Council of Voluntary Carbon Markets (ICVCM) on March 31st of this year, promise to change that. The CCPs are a set of criteria developed by a group of leading carbon market stakeholders, including governments, NGOs, and industry representatives, with the aim of establishing a common standard for carbon credit programs, thereby harmonizing the market and ensuring a level playing field for all participants. However, achieving this harmonization will require careful coordination and cooperation among different stakeholders, and it remains to be seen how effectively CCPs can achieve this objective. Carbon market experts are currently discussing and debating how CCPs will interact with existing quality labels, as well as how they might impact voluntary carbon credit transactions under Article 6.2 of the Paris Agreement.
Let’s look at the CCP criteria a bit more closely.
CCP criteria are divided into three categories: Governance (criteria 1-4), Emission Impact (criteria 5-8), and Sustainable Development (criteria 9-10). The Governance criteria focus on the structure and integrity of the program authority, including its legal status, governance structure, and financial management. The Emission Impact criteria assess the environmental integrity of the carbon credits, including their additionality, permanence, and accuracy of measurement. The Sustainable Development criteria consider the social and environmental co-benefits of the projects generating the carbon credits, including their contribution to sustainable development goals, stakeholder engagement, and local community benefits.
| Governance | Effective Governance | The carbon-crediting program shall have effective program governance to ensure transparency, accountability, continuous improvement and the overall quality of carbon credits. |
| Tracking | The carbon-crediting program shall operate or make use of a registry to uniquely identify, record and track mitigation activities and carbon credits issued to ensure credits can be identified securely and unambiguously. | |
| Transparency | The carbon-crediting program shall provide comprehensive and transparent information on all credited mitigation activities. The information shall be publicly available in electronic format and shall be accessible to non-specialized audiences, to enable scrutiny of mitigation activities. | |
| Robust independent third-party validation and verification | The carbon-crediting program shall have program-level requirements for robust independent third-party validation and verification of mitigation activities. | |
| Emissions Impact | Additionality | The greenhouse gas (GHG) emission reductions or removals from the mitigation activity shall be additional, i.e., they would not have occurred in the absence of the incentive created by carbon credit revenues. |
| Permanence | The GHG emission reductions or removals from the mitigation activity shall be permanent or, where there is a risk of reversal, there shall be measures in place to address those risks and compensate reversals. | |
| Robust quantification of emission reductions and removals | The GHG emission reductions or removals from the mitigation activity shall be robustly quantified, based on conservative approaches, completeness and scientific methods. | |
| No double counting | The GHG emission reductions or removals from the mitigation activity shall not be double counted, i.e., they shall only be counted once towards achieving mitigation targets or goals. Double counting covers double issuance, double claiming, and double use. | |
| Sustainable Development | Sustainable development benefits and safeguards | The carbon-crediting program shall have clear guidance, tools and compliance procedures to ensure mitigation activities conform with or go beyond widely established industry best practices on social and environmental safeguards while delivering positive sustainable development impacts. |
| Contribution toward net zero transition | The mitigation activity shall avoid locking-in levels of GHG emissions, technologies or carbon-intensive practices that are incompatible with the objective of achieving net zero GHG emissions by mid-century. |
Upon closer examination, it is evident that the CCP criteria are similar to the existing criteria of well-established offset programs and quality labels, such as the Global Carbon Council (GCC), or the Verified Carbon Standard (VCS) and its Sustainable Development Verified Impact Standard (SD Vista) label. The VCS is a widely recognized and widely used voluntary carbon credit standard that has been in operation for over a decade. The SD Vista label provides additional assurance on the sustainable development aspects of carbon credits, similar to the Sustainable Development criteria of CCPs. Additionally, the Global Carbon Council (GCC) has also developed its own quality labels in relation to credits’ alignment to the UN’s Sustainable Development Goals (SDGs). It is expected that these established programs, such as VCS, GCC and Gold Standard, will be among the first to align with CCP criteria and become “CCP-compliant” programs.
However, it should be noted that the CCPs appear to have been toned down from the initial discussions that took place months ago. Some stakeholders have expressed concerns that the original ambitious goals of the CCP criteria may have been diluted to accommodate various interests and achieve consensus among the participating organizations. In July, the ICVCM published its much-awaited Assessment Framework to assess programs and credits against the CCPs. Through its Assessment Platform, offset programs such as VCS, GCC and Gold Standard (as well as others) can submit their programs for CCP approval. It is expected that the first CCP-labelled credits will be ready for purchase by end of 2023 with most fully-fledge programs issuing CCP-labelled credits over 2024.
Another key aspect of CCPs that has generated discussions is the timing of their implementation and the potential impact on carbon credit pricing. While some CCP-labelled credits may be issued in 2023, and more in 2024, achieving a significant market penetration may take time and is likely to generate some confusion and pricing discrepancies during the transition period. It is anticipated that most knowledgeable credit buyers will start asking about CCP-labelled credits as early as 2024.
The introduction of CCPs also raises questions about the future of other established voluntary carbon credit programs, such as the American Carbon Registry (ACR), Climate Action Reserve (CAR), or Puro.earth, among many others, both regional and those linked to specific jurisdictions. These programs have been operating for years, providing robust criteria for assessing carbon credits and building trust among buyers and investors. With the emergence of CCPs, there may be a potential overlap or duplication of efforts, leading to confusion in the market and potentially diluting the value of credits generated under these programs.
Finally, the interaction between CCPs and the Article 6.2 of the Paris Agreement is an area of concern. Article 6.2 establishes a mechanism for voluntary cooperation between countries to achieve emission reduction targets. It allows for the use of internationally transferred mitigation outcomes (ITMOs), which can be traded in the voluntary carbon market. However, the rules and guidelines for implementing Article 6.2 are still being negotiated, and there are differing opinions on how CCP-compliant credits would fit into this framework. Some argue that CCPs could provide a common pathway and benchmark for countries to generate ITMOs and transfer them to other countries to meet their targets. Others are concerned that the introduction of CCPs may create confusion and complexity in the already evolving landscape of Article 6.2 and may require careful consideration and coordination among countries to ensure alignment and effectiveness.
Despite these challenges, CCPs offer several potential benefits to the carbon market. One of the key advantages of CCPs is their potential to enhance the environmental integrity and sustainability of carbon credits. By establishing robust criteria for assessing carbon credit programs, CCPs can ensure that credits represent real, additional, and permanent emissions reductions or removals, and contribute to sustainable development goals. This can provide greater confidence to buyers and investors, as well as enhance the credibility and integrity of the carbon market as a whole. Moreover, CCPs can also promote transparency and stakeholder engagement, as they emphasize the importance of governance, stakeholder consultation, and local community benefits. This can lead to better project implementation, social and environmental co-benefits, and long-term sustainability.
Another potential benefit of CCPs is their ability to drive innovation and improvement in carbon credit programs. By setting high standards and encouraging best practices, CCPs can incentivize carbon credit programs to continuously improve their performance, reduce risks, and enhance their impact. This can promote innovation in technologies, methodologies, and project designs, and foster learning and knowledge-sharing among different programs. Additionally, CCPs can encourage collaboration and partnerships among different stakeholders, including governments, NGOs, industry, and local communities, to work together towards a common goal of addressing climate change and achieving sustainable development.
Lastly, CCPs have the potential to simplify and streamline the carbon market by providing a common standard that can be adopted by different programs. This can reduce complexity, enhance transparency, and facilitate the comparison and assessment of carbon credits. It can also help buyers and investors in making informed decisions, and promote efficiency in the carbon market. Furthermore, CCPs can create a level playing field for different programs by establishing consistent criteria and verification processes, which can help prevent the risk of greenwashing or false claims of environmental integrity.
Conclusion
The Core Carbon Principles (CCPs) hold immense potential to revolutionize the voluntary carbon market while becoming a cornerstone to help achieve the goals of the Paris Agreement, ushering in a new era of credibility, transparency, and impact. However, the road ahead is not without its challenges and conflicting interests of different parties. The rapid and widespread adoption of CCPs by existing market programs and initiatives, such as VCS, GS, and GCC, will require concerted efforts to align criteria, establish robust assessment frameworks, and address concerns related to additionality, permanence, and double counting. Pricing differentiation between CCP-labelled and non-CCP-labelled credits may disrupt existing market dynamics, and there may be implications for established programs and initiatives. Yet, with challenges come opportunities. The demand for high-quality credits that meet CCPs is expected to soar, creating new possibilities for market players and collaborations. The advancement of environmental integrity in voluntary carbon markets will accelerate the convergence of voluntary and compliance carbon markets, contributing to a more sustainable and resilient future.
By seizing the opportunities and overcoming the challenges, we can collectively drive meaningful emission reductions and make a tangible impact on the global climate action agenda. The time to act is now, and the adoption of CCPs could be the catalyst that propels the voluntary carbon market into a new era of sustainability and effectiveness.