Driven by investor and consumer interests, corporate interest in reducing carbon emissions continues to grow, and several actions can be taken regarding this. Whilst some companies are looking to implement carbon reduction technologies, this is not practical for all cases or for all types of emissions sources. For difficult cases, companies are participating in voluntary carbon markets (VCMs) to offset emissions in lieu of reducing their own. The voluntary carbon markets involve a range of firms, including those that:
- Work with physical asset holders—including farm owners and forest landowners—to provide the decarbonization characteristics of their physical assets as carbon credits. This can include initial evaluation of a site, strategic planning to maximize carbon credit potential or reduce impacts on current practices, and assistance with reporting requirements. Firms often focus on a specific geography and carbon credit type, such as deforestation prevention in Brazil.
- Provide Monitoring, Reporting, and Verification (MRV) services, which essentially function to prove that the carbon credits generated are backed by a genuine reduction or removal of greenhouse gas emissions. MRV technologies vary considerably with the specific type of carbon credit in question (such as agriculture-based or reforestation-based), but typically involve a combination of surveillance and sensing technologies.
- Integrate carbon credits into other services, including retail banking or consumer purchases, often for high-carbon purchases such as flights.
- Act as trading platforms that allow trading of carbon credits either from producers to buyers or peer-to-peer trading.
Those that provide and sell carbon credits frequently also aggregate them into a standardized offering, attempting to create a carbon product that is consistently available and requires less research for repeat buyers.
Understanding the Challenges and Standards of Voluntary Carbon Markets
VCMs are largely unregulated, thus bringing certain challenges. Buyers of carbon credits want to purchase high integrity credits but may not have the ability or resources to evaluate the underlying projects. Additionally, recent reporting of low-integrity carbon credits has boosted awareness of the importance of effective standards, which should ensure that buyers can avoid negative publicity from purchasing low-integrity credits.
To alleviate this, several sets of standards exist, including those from large carbon registries such as Gold Standard and Verra, as well as independent bodies like the Integrity Council for the Voluntary Carbon Market (ICVCM) and Voluntary Carbon Markets Integrity Initiative (VCMI)—both aim to increase transparency and integrity. Whilst these standards generally agree on core requirements, they differ in their levels of scrutiny and how they interpret factors like additionality and leakage. The ICVCM and VCMI recently announced a collaboration to provide a framework for VCM integrity and transparency, though initial feedback from carbon registries was mixed, with some expressing that the independent bodies’ attempts to create market standards are too prescriptive, requiring additional transparency and creating a risk that some of their credits do not meet the new standards.
Ultimately, a widely accepted set of standards is beneficial to market participants, as it increases buyer confidence, assuming the standards can be met. This would be particularly beneficial for certain carbon credit types such as forestry- and agriculture-based credits, which are generally more challenging to prove additionality and permanence for. This has led some buyers to favor direct air capture, though these credits are typically much more expensive. For startups providing VCM services, accepted standards reduce uncertainty and allow companies to focus on a single set of actions and measures, rather than attempting to comply with several sets of different standards.
